Advertisers ar asking the LA Times to reduce ad rates

Los Angeles Business Journal

By JOEL RUSSELL - 11/27/2006
Los Angeles Business Journal Staff

Several major advertisers are looking for rate cuts on display advertising in the Los Angeles Times because of the swoon in the daily newspaper’s readership.


Buyers for Macy’s, one of the Times’ largest advertisers, and some big local auto dealers confirmed that they will try to leverage the lower circulation figures when they cut their deals for 2007.


Despite the 8 percent daily readership falloff over the past year – and 15 percent from when the last ad rates were set – advertisers are expecting tough talks because newspapers don’t always see circulation drops as a reason to trim ad rates.


“Papers, as general rule, are reluctant to identify the exact relationship of circulation to rates,” said Mike Monroe, vice-president of media and advertising operations at Macy’s. “As a general rule, newspapers don’t offer decreases in rates. So, whatever rate is paid eventually is something the publisher and the advertiser will agree upon.”


Still, several advertisers said they’ll be looking for a rate drop.


“The circulation has dropped and based on that, we hope to get a break on our rates for next year,” said a media buyer at one of the largest auto dealerships in the county. He declined to be identified, as did other ad buyers, citing the sensitive nature of the talks.


The Times, which issued a statement but refused to be interviewed for this story, has yet to publish its rate card, or what it plans to charge for next year. Major advertisers typically negotiate those rates, and those talks will be held next month.


When analyzing media options, agencies compare their cost per thousand readers, known as CPM. To calculate CPM, take the cost of a standard ad size – say a full black and white page, which costs about $117,000 in the Times’ main section – and divide it by the circulation. According to data in the 2006 rate card, such a CPM for the Times works out to $129. Based on the new preliminary circulation numbers, the Times’ CPM would rise to about $150. Alternately, the price per column inch would have to drop from $908 to $776 – a 15 percent decrease – to hold the CPM steady at $129.


Since the Times’ advertising rates for this year are based on figures from the March 2005 audit, advertisers are now reaching 15 percent fewer readers than they paid for this year. (From September 2005 to September 2006, circulation dropped 8 percent.)


“The circulation decrease on the face of it looks dramatic – 8 percent is a big number,” said Dale Travis, chief strategy officer for the Novus Print Media Network, a division of advertising conglomerate Omnicom Group Inc. “We’re very curious, asking questions of the Times to find out how much of that 8 percent is a true loss of qualified readers and how much is ‘scrubbing’ (an industry term for shedding free subscriptions).”


Travis said CPM “is important, but there are other factors. What I’m looking for is value, and that’s a function of price and effectiveness. I can ramp up that effectiveness through editorial adjacency, prime placement, day-of-the-week strategies or extension of the campaign onto LATimes.com site. So I have to weigh that price against all the other factors.”


Capturing readers

Several ad professionals said they are hoping the paper can find a formula to engage readers and promote local businesses.


“We want all our media partners to be successful,” Monroe said. “We want to see them trying new programs that will drive more customers to Macy’s, but we also want them to run their business in a way that makes sense. The sooner the Times can focus on driving their own business and capture more subscribers and readers, the better.”


Another set of ad numbers looks at return on investment, or ROI, by comparing the cost of the ad with any marginal sales gains at the cash register. “For a newspaper to be successful, it has to deliver customers at a price that yields a positive rate of return,” Monroe explained.


While declining to answer specific questions regarding the ad rates, Times General Manager Dave Murphy issued a statement that said the paper is “one of the best ROI media, if not the best ROI medium, in the market. ... Research has shown that consumers value newspaper advertising content. It is more likely to be consumed than that of radio, television or any other medium.”


Even with sagging circulation numbers, ad buyers plan to continue taking out space in the Times, in part because they are the largest print medium in town by a wide margin. (See the List on page 41 for a ranking of circulation for daily newspapers in L.A. County.)


“I’m a big L.A. Times fan, always have been,” said Tom Lehr, managing director at Dailey & Associates, which handles the Ford Dealers of Southern California account. “It’s disappointing to see what they’re going through right now, but its afflicting the whole newspaper industry.”


Online options

Media professionals advise that smaller companies should take advantage of the Times circulation situation by negotiating when buying ads and exploring the full range of media capable of promoting their business.


“We live in an age when the media universe is extremely fragmented,” said Monroe. “If a newspaper charges an onerous rate, it’s up to the advertisers to determine what other options will work for them. Newspapers understand that very well.”


The conventional explanation for newspapers’ shrinking audience holds that more people now get their news from media outlets on the Web. In fact, as the Times print circulation declines, its Web traffic increases. It generates 50 million page-views from 5.1 million unique visitors every month, according to the site. According to Murphy, LA Times.com display ad revenue is pacing at 50 percent year-over-year growth.


“Advertisers need to change as people change in the way they use media,” said Lehr. “If people start sourcing their news online, then advertisers need to be mindful of that, but so does the L.A. Times. They need to migrate online as well, and they’re starting to do that.”