Is That $114,000 Annual Assessment The AP Charges A 26,000 Daily Circulation Newspaper Really Such A “Worst Value” That The Publisher Claims?

Philip M. Stone August 21, 2008

American newspapers had bitterly complained to their news co-operative, the Associated Press, that its rates in these hard economic times were too high, so the AP introduced a new pricing structure that could provide up to $21 million in lower subscription rates. But to a 26,000 circulation newspaper in Idaho whose rates won’t change in 2009 the $114,000 annual assessment is still “the worst value for anything we purchase.” Is it really?

The Post-Register publishes 312 days a year. That means its daily cost for its AP services is $366 daily. So the real question here is whether the Post-Register could use that $366 daily, or less, to provide as much material as it uses from the AP. The  formula for discovering that is to determine the average annual cost, with all benefits etc.,  of an editorial employee, divide that cost into the fees charged by the agency and you now have the agency cost in local manpower terms. Next count up how much space in the newspaper is taken up by agency material – news and pictures – divide that figure by the agency cost in manpower terms, and compare that figure to what it would cost to fill that space by more staff.  For most newspapers the most cost-effective way to fill the news hole, particularly as newsrooms are continually being stripped bare, is the news agency. 

What publisher Roger Plothow really wants, however, is to pay the AP just for content he really wants, and not pay for what he doesn’t want – he calls it the “cafeteria approach”, but it goes by many names including à la carte. That approach creates real problems for a news agency for several reasons not least among them is that the current business model for news agencies is based on clients paying for what they don’t want!

There’s good reason for that -- different clients want different things. Sure, everyone will use the banner news of the day, but once beyond that usage varies widely. And the news agency is expected to cover just about everything. So, sure, there’s a lot of material individual media won’t use, but taken as a global whole, much of it is used.

Plothow feels seriously enough about his rates that he has written a cancellation letter. His point was simple, “All we want is a version of the business model that cable TV came up with decades ago. Offer us several levels of basic and premium packages, price them accordingly, and let us choose. Is it really that hard?”

Not hard at all! In fact it’s the exact pricing model that United Press International (UPI) used to have (we’re talking about the real UPI that went bankrupt back in the 80s because American newspapers refused any longer to support two American international news agencies). UPI would set the state news as the basic service which a newspaper had to buy and then on top the newspaper could buy the national/international news for a small add-on, it could buy business for another add-on, for those newspapers that are close to state lines they could also buy another state service for a slight add-on and so forth. It was a good system and newspapers liked it.

So with that in mind here’s the simple solution to do exactly what Plothow suggests. Make the Idaho state news the basic service and charge an $80,000 annual assessment. Want the top five or 10 national and international news stories – charge $20,000; want sports, $7,000; want business, charge $7000. And voilà there is $114,000; and does this pricing include the newspaper’s web site usage or is that another add-on? With such a scenario the AP would have to decide how it priced grey areas – can its copy be used on all newspaper platforms or a separate add-on charge for each platform; should the Idaho state wire be just Idaho, or perhaps also some copy from surrounding states; should it include some international/national news, sports and business not necessitating further add-ons; just how limited should such coding be and so on? But overall it’s the pricing formula the Idaho publisher seems to want and it then becomes a question of pricing the parts and deciding specific content, and pricing accordingly at a level both sides can live with. 

What a news agency can’t do and stay in business is to sell stories individually. It costs big money to provide news and an agency needs to know just how much money it can depend on annually to provide the required services. Not knowing from one day to another how much money is coming in – what happens on really slow news days --  is no way to run a business. 

Perhaps this is the time to remind readers that this writer spent 30 years in the news agency game doing everything from desk subbing to reporting to running bureaus to being a senior business executive.  A frequent news agency exercise is to determine just what news copy is being used and what is not – so the useless topics get short sway and resources can be dedicated to material clients really do want. Just this year this writer was approached by an international news agency to conduct just such an independent survey throughout Europe.

The other thing to remember is that news agencies really are not money-making machines. Sure an agency like ThomsonReuters has huge profits but that comes from the financial and database side of the business. Take a look at just the media bottom line and it’s very tight.

The AP recently announced, to great surprise, that US newspapers only make up around 28% of its revenues these days, and it looks elsewhere – particularly digital – for its fortunes. If Agence France Presse didn’t have French government ministries supplying more than 40% of its annual budget via “subscriptions” then AFP would be in right pickle. And it was only some 20 years ago that the real UPI disappeared into bankruptcy. So, the news agency game is not one where one makes a whole lot of profit, if any, although in AP’s case UPI’s demise did give it an opportunity to get its financial house in order.

“Lean” Dean Singleton, publisher of the MediaNews Group that knows a thing or two about cutting a newspaper’s cost structure, happens to be AP’s chairman. He understands that “when you’re faced with downsizing your news operation and making dramatic changes in the way you operate, you always look to someone to blame. And the AP has been a handy entity to complain about.” And yet, word for word news agencies are probably a newspaper’s the best value.

There is one point in Plothow’s letter to the AP that should not escape notice. In writing the cancellation the newspaper began the two-year cancellation period. Like it or not, The Post Register is stuck with the AP for another two years. How come?

Because in the US the AP has what is called a two-year rolling notice clause for its newspaper members. That means the contract continues forever until a cancellation letter is delivered via registered mail, and then the contract expires in two years from the postmark. That two-year rolling clause is a real “killer” for competitors and also for a newspaper looking for real savings sooner than that.

UPI sales people, for instance, knew the first thing they had to do to have any chance of signing an AP newspaper was to get the publisher to write that cancellation letter. But usually UPI didn’t want that letter sent until its deal was completed because give AP two years to lift a cancellation and one cannot believe the campaign it launches, not just from senior AP executives but from publishing peers enlisted to the cause,  and many decision-makers quiver under the onslaught. So better to have the contract in hand before the AP could act!

UPI sales people also used to walk around with a law review clipping dating back from the mid 1940s in which a New York Supreme Court judge actually ruled the two-year rolling notice was illegal under New York law (where AP was incorporated). Now that was 60 years ago so no telling if that case law is valid today given any legislation passed since, but surely there are newspaper sharks out there who might want to take a look.

If US newspapers really don’t think the AP’s board has gone far enough in lowering rates starting in 2009, then the only real weapon they have is filing that cancellation notice. It gives newspapers two years to figure out what to do, and if enough of them do it then it will also have AP thinking real hard, too.  Do small circulation newspapers just go all local, as the Idaho paper mentioned in its letter,  or do they make other arrangements to get state news (for instance, what if Idaho’s news media formed their own non-profit Idaho news co-op -- take a look at what happened in Ohio recently).

There seems to be a great divide – the AP provides a great news service but its clients are crying that in these economic hardship times the rates are still too high. The AP board has instituted reductions although in the Idaho case there was no reduction, but members are still crying the rates are too high.

It probably means an AP priority remains looking elsewhere for additional revenues (it might, for instance, take a look at its rate structure it imposes internationally and although it has got out of the translation business in many countries should the remaining such services remain) for it may well have to become even less  dependent on US newspaper subscriptions. On the other hand, US newspapers really need to do a cost-analysis of their AP service, breaking it down to how much gets used daily, what is the daily cost, and  then determine that maybe that really is value for money after all, or could that money be better spent doing something else.   

And one thing the AP needs to take into account is that the US newspaper editorial space is declining. Tribune, for instance is leading the charge, going from a 60% news hole to a 50% news hole. And with advertising already well down that means the space for editorial is far less than it was say five years ago. Yet another reason not to pay so much for AP services (although the argument could be made that with newsrooms shrinking the AP usage is even greater than before – its where the cost analysis really comes into play.) .

AP frequently announces new services -- covering personalities seems to be the big push these days --  and the agency probably knows better than anyone else which of its material gets most used and what is least used. It may well be time for another spring-cleaning of little used services.

One thing is clear, US newspapers want to pay less, all the signs are that financially print is not going to get better any time soon, and although newspaper readership when including their web sites is pretty steady or perhaps even increasing, the overall revenues are still going down because the loss in print revenue is so dominant.

Given that scenario maybe the AP really needs to take a fundamental look at its pricing that is done in such a way that the publishers are happy, and the AP accountants are pleased, too. There are different ways of doing things!