Shoppers, Weekly Papers Battle for Ad Dollars

Not so long ago, weekly community newspapers and all-advertising shoppers were the starving strays of the print media world, surviving on the scraps of local retail and classified advertising that were not fit for the palate of the large daily newspapers.

But today, while some older metropolitan dailies such as the newly deceased Herald Examiner wither for lack of advertising, many suburban-oriented local weeklies and shoppers are thriving. That segment of the industry alone accounts for more than $3 billion annually in ad revenues, according to the Newspaper Advertising Bureau.

Moreover, the community newspapers, which contain highly local news coverage and local retail and classified advertising, and shoppers--such as the Pennysaver which carry only ads--are no longer the province of undercapitalized entrepreneurs. Many, in fact, have been gobbled up by large media companies, who have shuffled and merged stand-alone local titles into powerful chains.

“Twenty years ago, a weekly was like a flea attacking an elephant, but not anymore,” said James Dunaway, director of information at the Newspaper Advertising Bureau in New York.

He noted that the ability of community weeklies and shoppers to target circulation in a very specific market area had enabled them to provide advertising services at a price that daily newspapers are hard-pressed to match.

Nowhere is this trend more evident than in Orange County, where towns, sprouting full-blown from one-time citrus groves, provide a tempting market for community publications. Publishing sources said about 15 serious buyers are interested in Golden West Publications, the chain of 31 weekly newspapers--22 of them in Orange County--that Richmond, Va.-based Media General put up for sale last month.

The Golden West papers have a combined circulation of 487,000 and reflect the rapid growth of the weekly newspaper market, especially in South County.

Howard Publishing Group, which owns the daily San Clemente Sun-Post and several small dailies outside the county, is moving to stave off inroads by South County weeklies with a new weekly title to be launched later this month. To be called the Orange County Preview, the new tabloid will focus its editorial coverage on entertainment and life-style subjects in order to distinguish itself from the Golden West papers such as the Saddleback Valley News and the San Clemente News.

Howard and other publishers, including The Times and the Orange County Register, also have to defend their advertising base against the ubiquitous shoppers, which are mailed free to every household in a market area and are “zoned” to provide advertisers with exactly the geographic coverage they want.

The largest of the shoppers--the Pennysaver--was founded in 1964 in a Huntington Beach garage by Herbert Sutton, Robert Demarco, and H.C. Van Ausdeln and is now a major institution employing several thousand people in Orange County.

In South County, the Pennysaver has been run by Capital Cities/ABC Inc. since the New York media firm bought out Sutton in 1984. In North County, the proprietor is Harte-Hanks Communications Inc., a San Antonio-based media conglomerate that purchased Demarco’s Pennysaver in 1973.

Van Ausdeln still runs the Pennysaver in the Newport Beach-Costa Mesa area. He declined to discuss the operation.

After many years of rapid growth, however, even the shoppers are facing renewed pressures from the myriad competitors they face. Not only must they fight one another and the two big local dailies, but they are also under attack from national direct-mail houses, such as Advo-System Inc., which have grown increasingly sophisticated in their ability to reach narrowly targeted markets.

“We have 435 print competitors in Southern California,” said Harry Buckel, president of the Brea-based Harte-Hanks Pennysaver Group. “On one end, we compete with The Times, the Register, and Advo; and on the other end with local shoppers that have one or two cities.” Orange County, Buckel added, is “marginally more competitive” than other areas.

Traditionally, Pennysavers and other shoppers, such as the South Coast Shopper (also owned by Harte-Hanks) have relied heavily on so-called “private party” advertising--individuals attempting to sell items to other individuals--in addition to display advertising from local retailers.

But in recent years, they have moved increasingly into the distribution of pre-printed advertising material. That’s where the big money is--but it’s also where the daily newspapers are (especially on Sundays) and where the direct mail houses focus their energies. One former Pennysaver executive said the emphasis on the pre-print business has been a strategic error that has cost many shoppers a big part of the private party franchise.

But Wesley Turner, president of Capital Cities/Sutton Industries Pennysavers, disputes this view: “We have seen greater growth in the pre-print area over the past four or five years, but all categories have continued to grow.”

Neither Harte-Hanks nor Capital Cities will break out revenues for their shopper operations, but Owen Van Essen, a newspaper broker with Lee Dirks & Associates in Birmingham, Mich., said most shoppers aim for revenues of about $30 per household. Harte-Hanks claims a California shopper circulation of 3.3 million, while Capital Cities/Sutton Industries said it has about 1.6 million in the state.

Van Essen noted that shoppers have a great advantage in being highly flexible. “They are in a position to capture whatever niche the newspaper does not have a firm grip on,” he said. “If the newspaper pre-print rates go too high, they can go offer a lower-cost alternative. Or they can build a franchise on personal classified adds.”

Executives at The Times and the Register confirmed that they consider both the shoppers and the community weeklies to be competitors. Both papers have implemented programs in which advertising inserts are distributed to households that do not subscribe to the newspapers, thus enabling them to match the ability of the shoppers and Advo to reach every household.

In competing with the weekly newspapers, shoppers claim a big advantage in being distributed by mail. “Golden West (the weekly publisher) is certainly a competitor,” Turner said, “but the difference is we offer guaranteed delivery to every mailbox. That’s a significant value for advertisers.”

Many local weeklies are hand-delivered or distributed in stores, and it can be difficult to assure that all the supposed recipients are actually getting the paper. The weeklies, on the other hand, can make a better claim that their product is actually read.

Reliance on the mail can be a mixed blessing because it subjects the shoppers to severe price shock every three years or so when the Postal Service raises its third-class mail rates. “Unlike most businesses, which face a reasonable cost increase every year, we have huge increases every three years,” Turner lamented.

The next round of increases, now tied up in a lawsuit filed by a number of large mailers including Harte-Hanks, will probably exceed 20% and is expected to kick in sometime next year. A big-enough increase could prompt some of the shoppers to move to private mail-distribution systems, though they are coy about their plans.

It may also stimulate additional efforts to “add value” to the publications in order to justify increased rates for advertisers. Harte-Hanks launched a redesigned, basic Pennysaver earlier this year that even includes an editorial column, and Buckel said the company was constantly testing new formulas.

Also competing for the advertising dollar are more specialized, all-advertising publications, such as the Recycler automobile publications and other so-called “rack products” that are either sold or given away in convenience stores and supermarkets.

One of the most successful of the highly targeted entrants is Let’s Rent magazine, a free publication filled exclusively with advertisements from apartment complex owners and property managers. The Costa Mesa-based group of six rental magazines was recently sold to a British publishing company for $25 million.

Mel Skolnik, president of South Coast Printing and founder of the South Coast Shopper, called Let’s Rent a “phenomenon,” resulting from the glut of quasi-luxury apartments for rent in the area, that would be difficult to repeat. But in general, he added, shoppers would have to pursue new products and work their markets hard to maintain growth.

South County, where the media market is burgeoning, presents the most acute challenge. The two big dailies, the Capital Cities/Sutton Industries Pennysaver, the Harte-Hanks South Coast Shopper, whatever media chain ends up owning the Golden West weeklies, and the Howard Publishing Group will all be fighting it out for the local advertising dollar.

“South County is where everyone in this type of activity wants to be,” Skolnik said.

And now that everyone is there, the question is whether there is enough room.