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JANUARY 31, 2005
Free Press Gets A Whole New Meaning Giveaway papers are attracting younger readers and bringing in new advertisers When the New York Times Co. (NYT ) announced plans on Jan. 4 to ante up $16.5 million for a stake in a free Boston daily newspaper, it validated a strategy others had launched as far back as five years ago. The Washington Post, Chicago Tribune, Chicago Sun-Times, and The Dallas Morning News have all jumped into the free-daily fray, hoping to beat competitors as they go after a younger readership and the coveted advertisers that come with it. Many more, wisely, are expected to follow. "When the Times sneezes," says Earl J. Wilkinson, executive director of International Newspaper Marketing Assn., "everyone catches a cold." Getting into the free business is a smart and necessary strategy for a graying industry. A few telling statistics show the huge void left by the exodus of young newspaper readers. In 2004, just 39% of 18-to-24-year-olds flipped through a newspaper on any given day -- down from 59% two decades earlier. And only 17% of daily newspaper subscribers fall into that age bracket, according to a 2002 Newspaper Association of America study. Meanwhile, estimates for total spending on newspaper advertising in 2004, about $46 billion, are still shy of a peak of $48 billion in 2000, says the NAA. Clearly, the industry's ad slump has been exacerbated by newspapers' failure to hang onto the readers Madison Avenue cherishes most. It's not like they haven't tried. But bulking up entertainment and sports coverage and adding educational outreach components and special supplements have had little effect. If young would-be readers crave news, they most often hop online -- or now, it seems, grab one of the free dailies. Today roughly 40 free daily papers target youth -- all popping up in the past five years, estimates the NAA. The tabloid-formatted papers with short, snappy stories, lots of celebrity chitchat, and heavy doses of graphics play well to members of Generations X and Y. And of course, the price is right: Hawkers at subway and bus stops and on street corners put newspapers right into their hands. Diving into the freebie biz may seem like desperation, but it turns out it's nothing to sneer at. The move draws in new advertising, from local auto dealers to special cell phone promotions. The giveaways provide the big papers with a scrappy brand that allows them to deliver a young audience to advertisers with discounted rates or packaged offers. That allows the main newspaper to stay the course, without having to tinker with its ad rates. Merrill Lynch & Co. (MER ) publishing analyst Lauren Rich Fine says having two kinds of properties "ends up being additive." Advertising Mecca It's unclear how many of the free newspapers are profitable so far, but the flow of ad dollars is steady. Belo Corp. says its 15-month-old freebie Quick in Dallas has attracted about 200 advertisers that never bought space in its flagship Dallas Morning News, accounting for 15% of Quick's total revenues. Metro Boston, the paper the New York Times Co. is teaming up with, reported revenue of $10 million in 2004, not bad for a free distribution product, says newspaper economist Miles Grove. Still, adds Merrill's Fine, "it's more of a beginning than anything." The endgame, though, is to get young readers into the daily paper groove so they'll yearn for a more grown-up product and open their wallets for a subscription. Converting fans of free dailies into paying customers is a tough proposition. Exhibit A: the music industry, in which a deep slump in sales followed the rise of free online file-sharing. There's even a chance that the reverse could also occur -- that folks will swap their subscriptions for a free ride. But so far there has been little cannibalization of paid newspapers. Piet Bakker, University of Amsterdam researcher who has been tracking free dailies for six years, says he sees scant evidence that readers are dropping subscriptions for the free product. Bare Bones Quality may be a concern, too. Can papers with bare-bones operations uphold the high journalistic standards expected of traditional dailies? Editorial models vary widely. Some rely on the repackaging of stories from a parent paper, others run wire stories, and some emphasize original reporting. "Our philosophy is the same as the New York Daily News or the New York Post," says editor Alex Storozynski, who manages two full-time reporters at Tribune Co.'s AMNewYork. "We do investigative journalism. We try to beat other people on stories." Still, some worry about a "dumbed down" freebie hurting a parent paper's reputation, though analysts say there is little to fear. "I believe the public understands only the single brand name of a paper," says newspaper consultant David M. Cole, adding that most readers won't remember that The Times owns part of Metro Boston. Cities with mass transit in place are the biggest targets so far for the giveaways. But other commuter markets aren't far behind. Billionaire investor Philip F. Anschutz is set to launch the free daily Examiner in Washington D.C. on Feb. 1, using a traditional door-to-door delivery model. He has licensed the name in more than 60 other cities. With young audiences increasingly distracted by everything from souped-up cell phones to Internet Web logs, publishers need to start thinking of freebies as another critical platform. Now that they're catching on, can a new category for the Pulitzer be far off?  By Lauren Gard Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. 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