The Death of the Rate Card

    August 2, 2007

I can always tell how healthy a magazine is just by looking at it.  If it looks like it’s been eating well and lifting weights, I figure it’s doing fine.  But when I see those anorexic magazines that fold over like soggy pizza when I pick them up, I know they’re in trouble.  Lately, I’ve been seeing a lot more anorexic magazines, and a lot fewer hearty ones.  In the meantime, if my computer were a magazine, it’d be fat and robust.

It’s no secret to anybody that the print industry is in dire straits.  Newspapers are suffering heavily.  The Tribune Company, owner of the Los Angeles Times and Chicago Tribune, posted a 5% drop in advertising revenue in their first quarter of 2007.  Gannet Company Inc., owner of USA Today, and the New York Times Company both posted a 3% drop in national advertising revenue.  This is all according to the most recent quarterly reports filed with the SEC.

Part of the reason why this is happening, is, of course, because it’s so much easier to buy an ad online through an automated system.  The other reason is because a good chunk of online media is competitively priced through an auction and comes with better performance tracking than a newspaper ad.  When newspaper publishers determine the value of their ads, it has nothing to do with either the market value or the ads’ performance—it has to do with the dreaded rate card.  But we advertisers can rejoice, for soon the rate card will be no more.

Do not weep for the rate card, for it has enjoyed a long and prosperous life, arbitrarily  plundering from advertisers without providing any meaningful value.  And don’t for a minute think that it will go quietly.

Google is helping the newspapers sell ads, by making it easy for small advertisers to buy space via their automated system and applying the competitive, auction-based pricing model.  And yet, despite the dire straits they’re in, some newspaper publishers are disgruntled at the help they’re getting.  In a New York Times article earlier this month, the SVP of Strategy and Development at the Chicago Tribune bristled at the low rates that advertisers were bidding, accusing them of having an eBay mentality.

The traditional definition of chutzpah is when someone kills his parents and then pleads for mercy because he’s only a poor orphan.  This is worse.  This is like Lois Lane stabbing Superman in the back with a shard of kryptonite as he rescues her from a burning building.  If advertisers have an eBay mentality, it’s because what publishers are offering is as valuable as something on eBay.

More than anything else, I think there’s a psychological issue at play here. The newspapers, and offline publishers in general, are afraid that they’re going to lose power.  These media despots have been lords of the realm for a long time, too long if you ask me.  Now there is a viable alternative, and they’re so used to calling the shots that they can’t realize what’s happening to them.  It is only a matter of time before advertisers demand that they set the prices, and the newspapers won’t be able to call upon the rate card to bail them out.

Personally, I think newspapers have reason to be optimistic.  Once they let the rate card go, and let the market set the price, they might be able to create innovative services that would make them even more money than the rate card could ever dream of.  It’ll be like dumping an overbearing, manipulative boyfriend or girlfriend – once they get over it, a whole new world of possibilities will open up. 

For example, if the paper could marry a user’s online site behavior with his or her offline delivery address, advertisers could well bid very high prices for the chance to target behavioral segments with inserts.  If I log on to the New York Times online and look for Manhattan real estate, and the Times can marry that behavior with my delivery address, I bet there are hundreds of realtors that would love to show me an ad about an open house.  In this way, the death knell of the rate card could start to make newspapers and magazines look healthy again.