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Unbundling The Newspaper

By JOHN F. OPPEDAHL Former Publisher & CEO, The Arizona Republic

I’d like to discuss some fairly radical ideas about the newspaper industry. I'll be the first to say that I don't know which of them will work effectively. But I think we have to try some new thinking to advance our editorial cause, our advertising mission, and our circulation and readership objectives.

Think about this: For a long time, the daily newspaper has been a mass medium. It was designed to reach as many people as possible. The circulation demand was to sell "just one more copy."

And everyone pretty much got the same thing. The news might change between editions and there might be afternoon and morning editions, but that was about all the difference there was.

A while back, someone invented geographic zoning that allowed advertisers and readers some differentiation by where the readers lived and where they shopped.

ON THE CUSP OF A NEW IDEA
Different by advertiser goal
Different by reader interest

I think we're now on the cusp of a new idea. That idea is that we can, if we want to--and if it makes economic sense --to differentiate our editorial and advertising products in some new ways.

But why do that? People keep asking me, when they point to the drop off in viewership of the national TV networks, aren't we in newspapers the "last big mass medium?"

Well, we may be, but there are some other things at work out there, too.

I'm talking about what I think are the significant strategic shifts that we have to consider in how we go to market. A very different business model could emerge that includes the unbundling of our products--by day of the week, by how we price to advertisers and readers, and by how we satisfy readers' interests. Here are five things to consider:

First, the delivery of flexible editorial and advertising products using address-specific delivery. This really means that not all subscribers get the same product.

Second, we could offer the option of receiving premium products. For example, if you are a print subscriber, for some additional charge you could get a password that allows you access to premium content and information online. This has little incremental cost and would allow us to bundle print and online in a powerful way.

Third, consider flexible-day-of-the-week delivery. Frequency options have always been built around the newspaper's distribution limitations rather than around consumers' preferences. For a long time, we could get away--rather arrogantly--with this approach. I think those days may be over.

Fourth, let's discuss day-of-the-week pricing to the advertiser. This would allow us not only to better price each product (for instance, advertisers are used to paying more for ER than for a rerun of Gomer Pyle), but to put pressure on the newsroom to prop up underperforming products. The newsroom's product weaknesses would become more glaring, and this would add an element of accountability to the newsroom. My bet is very creative solutions will surface.

Fifth, let's discuss variable pricing to the consumer. This is a little more controversial but essentially puts upward pressure on subscription rates in areas of the market that can afford it. This will allow newspapers to stay more affordable in lower-ncome or highly competitive areas. Clearly the Audit Bureau of Circulations (ABC) is starting to think about variable pricing and there are even some folks in our business who believe that in short order there will be no ABC pricing restrictions at all.

BETTER VALUE
How much time do our consumers have?
Readership vs. circulation

Also, I think we must find a way to provide better value for the consumer's discretionary time. Convenience is the key issue here. The currency of time is more precious to many people than the currency of money. Think about all the ways you buy time during a week. You have things delivered that you could pick up, for instance. You buy prepared food instead of cooking it yourself. You "multi-task." For many products, it is not an economic decision, it is a time/value proposition. Becoming relevant means making fundamental changes in the way we go to market.

In addition, we need to talk more about readership and the prudent use of free distribution of our products. There are lots of newspapers that now are distributed free and there will be more--to new movers to town, to waiting rooms, etc. Paid circulation is not the measuring stick it used to be. Today, advertisers are sophisticated enough to know what rings the cash register and they don't need an annual audit to tell them what to buy.

What do advertisers want?
Flexibility, Variety, Targeting

During the last 40 years, an enormous direct-mail industry has grown up in this country, partly because newspapers and other print products couldn't solve one goal of advertisers--to target specific customers. I'm not saying newspapers and their managers were clueless 40 years ago, but I have heard that case made.

On the other hand, back then successful newspapers had such good profit margins. and there was certainly no newspaper technology available in mailrooms to compete with the automation and staffing levels of a subsidized post office, so there couldn't have been much interest on our part in trying to compete with direct-mail.

Fast forward 40 years and the direct-mail industry's revenues are about equal, I think, to those of the newspaper industry. And the advertisers who 40 years ago were looking for ways to target their markets still want to do that. And now they've got some other ways to divide up their audiences. These include cable television, which will soon include digital cable that will allow advertisers to zone television advertising. They also include an incredibly diverse magazine business and, of course, the Internet, the ultimate direct-marketing tool, as soon as anyone really figures out how to make it work without antagonizing customers. Junk mail through the post office is one thing. Junk mail online is really obnoxious.

So what if newspapers could remain a mass medium and also provide targeted delivery of advertising and editorial material? What if we could, to some degree, allow readers to have something different from what their next-door neighbor gets delivered? That's what unbundling the newspaper is. For example, some people don't want all those inserts in the Sunday paper. What if you charged more money for a leaner Sunday paper without the inserts. That's heresy, of course.

But consider what we did in Phoenix last summer. It gets quite hot there, and a large part of our population goes to San Diego. We printed a beach edition of The Arizona Republic in San Diego using high-powered Xerox machines at a naval base on the coast. We gave the beach edition away as part of a marketing program with the San Diego Union-Tribune, and our effort was very popular. But one of the most unusual aspects of the beach edition was what happened when we got copies sent back to Phoenix: All kinds of people in our building, almost all of them under 30 years of age, asked how they could get the beach edition delivered to their homes in Phoenix in lieu of the regular edition of The Republic. They all said the eight-page beach edition was just about all the news and information they needed and when could they get it. We also published a four-page edition at the site of the Phoenix Open. It also was quite popular.

HAVE THINGS CHANGED?
Can we use new technology?
I believe we'll need to consider all this as we move through the next 10 years of this business. So, what's changed to allow us to do this? I think that mailroom technology in the next five to 10 years will allow us to operate high-speed equipment that will provide differentiated products. In the meantime, in Phoenix we've developed some technology that allows us to do address-specific delivery now.

This technology is a tablet called the Softbook, an electronic route list that allows our delivery staff to provide different products to different addresses. For instance, about 10 percent of our 300,000 home-delivered products are not The Arizona Republic. They are The Wall Street Journal, The New York Times, USA Today, and Investors Business Daily. Soon we also will be delivering the Financial Times and a local business journal.

ADDRESS-SPECIFIC DELIVERY
Three Wednesdays in September
94 to 99 percent accurate delivery
We tried our first address-specific delivery that was not another newspaper on July 12, when we delivered 1,253 test pieces to Arizona Republic employees, with 97.5 percent accuracy. The following Wednesday, we distributed 19,434 advertising pieces for a local firm, Norwood Furniture, which wanted to limit its flyer to households with more than $75,000 in household income in a certain part of the local area. To reach non-subscribers, we used the post office to send out another 29,873 advertisements for Norwood, which we can do easily because we have also gone into the direct-mail business. The next week, Norwood was back with 20,576 flyers aimed at households with more than $50,000 in household income. That week our carries had an accuracy level of 91.6 percent. The next week a big supermarket chain, Fry's, wanted delivery of 9,330 pieces in a 2-mile radius around two of its stores. The following week, Fry's wanted 14,601 pieces to homes in a 2-mile radius around three stores.

Last month, we used the Softbook to make differentiated deliveries on three Wednesdays. The first, on September 6, was an advertisement for a car repair shop for luxury automobiles to 10,755 houses with household incomes above $50,000. We used the post office to deliver 5,700 of these, and used our carrier force to deliver about 5,000. We had 99.1percent accurate delivery.

WE DELIVERED 86,776 ASD PIECES
Six different advertisers
"Affluent Lifestyles"

It is, of course, essential that we have a sophisticated database of all the households in our local delivery area. It took three years and thousands of dollars to construct, and last June it was up and running. We believe we have the best, most complete, most sophisticated database in the Phoenix area. So, on Sept. 20, our carriers delivered 86,776 ASD pieces for six different advertisers to households we identified for the advertisers as "affluent lifestyles." That meant that the household met one of these criteria: Income of more than $100,000, a home worth more than $300,000, a luxury car newer than 1997, an investment portfolio of more than $200,000. You can do this only if you have a database that allows you to divide up your market by segments. Our latest delivery, last week, was 6,000 pieces of advertising for an insurance company to households with a resident older than 55.

ASD FOR EDITORIAL
Market segments
Where are those golfers?

This ability to unbundle for advertisers really begs the question of doing this for editorial, as well. We haven't tried that yet, but have several proposals under study. They include aiming editorial sections to newcomers to town, at Hispanics, and at other demographic segments. If I were a managing editor again, I'd love to do a golf section and get it to just golfers. As it was, we did an ROP golf section a few years ago and it laid an egg, because, as it turns out, about 80 percent of the people who read our paper don't play much golf, if any. With our new database, though, we can now target golfers in our market if we want to.

SEVEN DIFFERENT PRODUCTS
Any-day Home delivery
Any-day pricing
Make 'em buy SEVEN cans of soup

But unbundling a newspaper doesn't mean just address-specific delivery. It also raises the question about how many products you are delivering. I think we all now are delivering seven different products. I think advertisers treat us that way and readers, especially single-copy buyers, think so, too.

Think of going to the store to buy a can of soup and the cashier tells you that you have to buy seven cans instead of one. What kind of consumer-product strategy is that? But we do it all the time. I think that eventually that's going to pass and we will be home-delivering any day anyone wants the paper. And we'll be pricing advertising by the circulation on the different days, probably lower on Mondays and Tuesdays, higher on Fridays and Sundays.

-- John F. Oppedahl, who resigned Oct. 27 as publisher and CEO of the Arizona Republic, delivered these remarks to the Inland Press Association on Oct. 16, 2000 in Chicago.