Late last year, upon the release of the Canadian newspaper readership data from NADbank, I posted a blog note reporting the continued strength in Canadian newspaper readership.
Specifically, Canadian print readership continues to penetrate roughly 70% of the Canadian adult population. Adding in the digital reach, the levels rise to just over 76%. In Toronto, one of North America's most competitive newspaper markets, print readership rose 1.7% while the print and online combination grew by 3%.
Soon after that posting, many U.S. newspaper colleagues asked my opinion on why Canadian newspapers appear to be performing better post-recession than their American counterparts. I didn't have a solid answer then and I'm not sure I do now.
But recently Statistics Canada released additional data showing the same trends, namely that readership is up and profitability is returning to Canadian newspapers. At the same time, pre-tax profit margins are down only 2.4% from the levels recorded in 2008.
Of course, this release prompted the same question from publishers around the world: Why do Canadian newspapers appear to be outperforming similar-sized newspapers in the United States?
To make an attempt at putting together a few hypotheses on what might be causing the differences, I reached out to a number of colleagues, some of whom have experience in Canada, in the United States and in four cases, people who have worked on both sides of the border. The result presents a few possibilities for discussion. Consider them to be “Points to Ponder” rather than definitive reasons why newspapers in Canada may be stronger than similar-sized titles south of the border.
1. Advertising revenues
- ROP: Throughout the 1990s and into the early 2000s, many Canadian newspapers were envious of the high profit margins recorded by similar-sized publications in the United States. Studies found there often were no big differences in productivity, editorial quality, and circulation levels, but there was often a huge difference in advertising revenues. The U.S. retail market is much larger and at that time much more competitive than most Canadian markets. Retail consolidation started much earlier in Canada with department stores either merging or leaving the market in the late 1980s and early 1990s. The consolidation took a significant bite into ROP revenues. In the United States, the Wal-Mart effect hit retail in the mid-1980s, but it's only been in the past few years that we have seen a similar consolidation of the larger department store brands, such as Macy's absorbing regional competitors. This loss in revenue, while detrimental to Canadian newspapers, happened at a time when business continued to thrive in other areas. Basically, we simply learned to survive with less revenue.
- Classifieds: A similar trend occurred with classified advertising revenues. The decline for larger Canadian newspapers occurred somewhat sooner than in the United States. It had started in the late 1990s and by 2002 the war for recruitment advertising was incredibly active. Canadian newspapers took this hit in stride and learned, yet again, to adapt and survive with fewer revenues.
- Real estate: While there were some Canadian cities with overheated real estate prices, in general the real estate market was not in as bad a shape as it was for our American counterparts. Newspapers in the United States had been riding high on real estate revenues and when that dried up in 2008-09 the hit was substantial.
I believe the net impact of these advertising revenue trends is that Canadian publishers had more time to adapt to changes to their revenue model compared with U.S. publishers who seemed to be dealing with the “perfect storm” when the recession and declining readership hit in late 2008.
Clearly, it's not as easy to make the right cost decisions when you are in a crisis situation. Possibly, some of the recent cost reductions made while in this panic mode harmed the business more than was first expected. Is it possible the super-heated revenue model of the early 2000s became the “new normal” for U.S. newspapers while in Canada the extremes were more moderated?
2. The NADbank effect
The currency in Canada for newspapers is readership, not circulation. This may seem like a subtle difference, but it's much more than that. The legacy currency for newspapers had been paid circulation. For decades this currency held true and offered advertisers a sense of comfort that copies were considered valued if they were paid. Over the years, audit rules were adopted and changed to reflect the new realties facing newspapers. The lines between paid, sponsored and free all began to blur.
In the mid-1980s the Canadian marketplace adopted a readership model to better determine the strength of newspapers and their relative position to competitors in the marketplace. In this environment, pushing copies and finding ways to have them “count” really didn't matter. What mattered now was pushing copies in a way that people would read them. It has completely changed the marketing approach for most Canadian newspapers. I still often hear my U.S. counterparts talking about the next audit release. That's much less of an event in Canada. But when the readership data is released most of the major publishers have their public relations machine in full gear.
It's not uncommon in larger American metropolitan areas to have little or no major daily competition. In Canada, larger cities like Toronto and Montreal have upwards of seven daily newspapers vying for readers. Even in small cities (population in the 1 million range) such as Calgary, Ottawa and Vancouver, there are multiple newspapers competing in the marketplace.
Does intense competition for readers result in stronger editorial products? More share of voice marketing efforts and an increased community engagement process?
I recently spoke with a newspaper marketing executive who worked in a mid-size market in both countries and he indicated he had to be more on his game in Canada because of what the competitor just might do.
Secondary causes might include:
4. Circulation practices
When discussing differences between Canadian and U.S. newspapers with my small group of advisors, various circulation practices came up regularly. They were not significant in isolation, but as part of a larger story there could be some truth to the overall impact to the organisation.
- Delivery service: In Canada, porch delivery is considered the norm for newspaper delivery. It's uncommon to have a newspaper tossed at the end of the driveway. In the United States, driveway delivery, while not universal, is not all that uncommon. In fact, in a recent discussion I had with a senior U.S. circulation executive, his newspaper had moved all delivery to tossed driveway service in an effort to reduce costs.
- Circulation pricing: With a few exceptions (Boston Globe) and excluding the national titles, Canadian newspapers have been more aggressive with subscription rates. In recent years, a number of titles in the United States have been playing catch-up with subscription rates. The result has been more revenues, but a significant decline in circulation volumes. Could it be that readers are more tolerant of regular and smaller increases in rates rather than significant lifts infrequently?
- Re-occurring subscription payments: I spoke to a newspaper circulation executive who has worked in both countries and he quickly jumped on easy pay as a huge difference in circulation marketing between the two countries. His experience in the United States was easy pay levels in the 20% range and he found larger Canadian newspapers with 60%-70% easy pay penetration. The result is much better subscriber retention in Canada.
5. Civic engagement and literacy rates
In discussions regarding this issue of readership levels between the two countries, I had one of my colleagues go quickly to both civic engagement and literacy issues in Canadian cities outperforming similar U.S. counterparts.
On the civic engagement piece the data may support the story. Voter turnout in Canadian metropolitan areas has traditionally been in the 40% range, although last year voter turnout in the Toronto and Calgary municipal elections exceeded 50%. By comparison, large American cities tend to average roughly 30% with none topping 50% in recent years.
As for literacy rates, the story is less clear with comparable rates in both countries. There might be a story to tell regarding literacy rates in the inner cities, but I've not dug into the data far enough to make that argument.
So what does all of this tell us? Well a few things perhaps:
- This is a complex issue with no clear answer.
- Complexities across international borders bring in many factors — while Canada and the United States share many similarities, we also have considerable differences.
- The factors impacting readership in both countries are mostly longer-term trends with very few quick fixes.
- Digital media is and will continue to put downward pressure on all traditional newspaper metrics, circulation, readership and earnings.
- Preparing for the future, investing in the fundamentals of content and reader satisfaction and advertising effectiveness will lead to titles that will buck the trends.
Finally, it's an exciting time to be in newspapers. I see a long road of success ahead for those that adapt to the brutal realties facing us all.