Wednesday, October 27, 1999

By Ken Sakamoto, Star-Bulletin
Windward auto dealer Mike McKenna, a longtime
Hawaii Newspaper Agency client, pulled half of his
$30,000 monthly advertising budget from HNA and
redistributed it with the weekly publication Midweek
when he learned that the announced closing of the
Star-Bulletin would not bring a discount in his ad rates.

Paper’s fate leaves
advertisers wary

Hawaii retailers fear that a
one-newspaper town could
bring either higher rates or
less return for their dollars

Picking up the pieces
Isle, mainland rates similar

By Peter Wagner


Star-Bulletin closing after 117 years FEW are watching the life-and-death struggle of the Honolulu Star-Bulletin more closely than Oahu's retail merchants, worried they'll get less bang for their advertising bucks in a one-newspaper town.

Some are concerned that advertising rates based on the circulation of two papers will stay the same despite the closing of one paper. Others fear rates will go up at the surviving newspaper. Still others fret over the loss of afternoon readers.

"We want to make sure we get what we pay for," said Dexter Suzuki, marketing director at General Growth Partners, manager of Ala Moana Center.

On Sept. 16, the Star-Bulletin's Florida-based owner, Liberty Newspapers L.P., and the owner of the morning Honolulu Advertiser, Virginia-based Gannett Co., announced plans to close the afternoon paper on Oct. 30. Those plans have been put on hold by a federal judge's injunction, which the companies are appealing. An Appeals Court decision could come as early as mid-November.

Meanwhile, newspaper advertisers watch, wait and wonder.

Like other retail clients of the Hawaii Newspaper Agency, which sells advertising space for the Honolulu Advertiser and the Star-Bulletin under a joint operating agreement, Ala Moana Center relies on the combined circulation of both dailies to reach shoppers. Ala Moana pays a premium "unit" rate -- $81.12 per column inch -- to reach all 171,276 weekday readers of both papers. But Suzuki wonders what will happen to the mall's advertising strategy, and its rates, if the Star-Bulletin closes. He also worries about the loss of a paper as the critical holiday shopping season approaches.

A September audit showed the Advertiser with 104,602 daily subscribers and the Star-Bulletin with 67,124. The semi-annual count also showed the Advertiser with 60,578 home deliveries and the Star-Bulletin with 53,338.

But while the Advertiser's numbers have been stable for the past six years, the Star-Bulletin's have plunged by nearly 20,000, dropping combined circulation 10.4 percent, from 191,717 in 1993.

Kent Baker, vice president and general manager at KHON TV2, thinks the lost readership has gone to television, radio, the Internet and other sources of information and entertainment.

"It's a tough time right now," he said, noting the growing number of options available to advertisers in Honolulu's competitive market. "It's tough for TV stations, too."

Keenly aware of the competition is Mark Adkins, vice president of advertising at HNA. "The day any media can monopolize a marketplace is long gone," he said. "Thousands of cities across the country are a testament to that."

But Adkins doubts his clients will change their advertising plans during the upcoming Christmas season, a make-or-break time for retailers. Many are already locked into advertising contracts for the season.

"As you go into the holiday season it's a critical time and people don't want to move out of a proven product like the joint operating agreement," he said. Known as a JOA, the federally sanctioned agreement allows Gannett-owned HNA to run the business functions of the Advertiser and Star-Bulletin while the papers' news staff and coverage are kept separate.

Many retailers, anticipating a rate discount with the loss of the afternoon paper, were surprised when HNA recently told them the combined unit rate would prevail. The higher rate would be justified, HNA told its customers, when Star-Bulletin loyalists were brought into the Advertiser fold.

But despite aggressive efforts to boost Advertiser circulation -- including removal of Star-Bulletin street boxes, notification that Star-Bulletin subscribers would be switched to the Advertiser, and promotional rates as low as $1 a month to get Advertiser delivery -- HNA's advertising customers are skeptical.

"Their rationale is that they will have the same amount of circulation," said Jack Bates, chief executive officer of advertising firm Starr Seigle McCombs Inc. "But that's something that remains to be seen."

Barbara Tunno, vice president of sales and promotion at Liberty House, is also among the wary onlookers. "I think most retailers are concerned about a potential drop in circulation numbers but it's obviously too soon to tell," Tunno said. "If there's a decrease in circulation, we'd expect a decrease in ad rates accordingly."

Tunno said the Star-Bulletin has been a key part of Liberty House's advertising strategy because next-day sales can be announced without disrupting business the previous day.

A 1991 survey of afternoon newspapers that went out of business showed less than half of circulation was recovered by the morning paper.

The survey, by Morton Research Inc. of Silver Springs, Md., looked at six large-market newspapers shut down between 1981 and 1991. The initial weekday capture of afternoon circulation by the morning survivor was 41 percent at mid-year, followed by a slight climb to 44 percent a year after the paper closed.

"I think a portion of readers were very much tied to an afternoon habit and when they could no longer get an afternoon paper they just said "To hell with it'," said John Morton, the firm's president. "There may also have been a certain amount of resentment."

More recently, however, the Tennessean, a morning newspaper in Nashville owned by Gannett, recouped virtually all of 46,000 Nashville Banner subscribers after the afternoon paper closed early last year.

But local retailers remain skeptical. One longtime HNA client, Windward auto dealer Mike McKenna, abruptly yanked half his $30,000 monthly advertising budget from HNA and put it into Midweek when told HNA would not discount his ad rates.

"What they're doing is taking away 67,000 circulation and leaving the rates the same," he said. "That isn't going to work."

McKenna wants at least a 30 percent discount because of the lower circulation he expects with the Star-Bulletin's closure. Meanwhile, he plans to spend more on radio, television and other venues.

Other members of the Automobile Dealers Association of Hawaii, representing $15 million in annual advertising expenditures, are glumly standing by.

"There's legitimate concern that circulation will decrease and costs will increase," said David Rolf, president of the 50-member association.

The association three years ago revolted when HNA planned to raise its rates, threatening to take its business to Midweek. HNA responded by lowering its auto advertising rates and creating a new "Wheels" section.

Michael Fisch, publisher of the Advertiser and president of HNA, declined comment on the company's plans because of the pending litigation that put the announced closure on hold.

In an interview before the Oct. 15 injunction, Fisch told Hawaii Business magazine that advertising rates would be reevaluated if the Advertiser didn't meet its circulation goals.

According to court filings, HNA had planned to forgo an advertising rate increase in light of the Star-Bulletin's announced closure. The agency also hoped to build the Advertiser's circulation to 160,000 by absorbing all the Star-Bulletin readers, minus roughly 10,000 who already also read the Advertiser.

A major advertising blitz, reportedly costing millions of dollars, was to have been launched this month before the injunction derailed plans.

While few retailers have followed McKenna's move, many are rethinking their ad strategies.

"We're not pulling any money from HNA, but if something happens we'll have to do something," said Valery O'Brien, marketing director at Kakaako-landowner Victoria Ward Ltd., which operates Ward Centre, Ward Warehouse and other retail complexes along Auahi Street. "We're very concerned that we'll be paying the same amount for ads in one paper that we do for both."

Picking up the pieces

Consulting firm Morton Research studied half a dozen afternoon newspapers that closed between 1981 and 1991. The study found that the markets' morning papers on average picked up the following percentages of the closed newspapers' readership, excluding dual subscribers.

Bullet Weekday: 41 percent (midyear audit); 44 percent (one-year audit)
Bullet Sunday: 30 percent (midyear audit): 46 percent (one-year audit)


Isle ad rates in line
with mainland, study shows

By Peter Wagner


While some advertisers complain that the Hawaii Newspaper Agency rates are too high, a recent Honolulu Star-Bulletin survey indicates they are in line with mainland newspapers of similar size.

The informal survey of 12 daily newspapers showed an average cost of $15.40 per thousand circulation to run a quarter-page ad. The cost at HNA, based on the combined circulation of the Honolulu Advertiser and the Star-Bulletin, calculates to $15.11.

The Hawaii Newspaper Agency, which runs the business operations of the separately owned newspapers, charges a "unit" rate of $81.12 per column inch to run an advertisement in both the Advertiser and the Star-Bulletin.

The combined rate compares with $60.64 per inch to run an ad only in the Star-Bulletin or $72.85 in the Advertiser.

At the combined rate, a full-page black and white ad, measuring 128 column inches, would cost $10,383, without discounts. Single-paper rates for the same ad would cost $7,762 in the Star-Bulletin and $9,325 in the Advertiser.

The agency's highest rate, $91.23 per inch, applies to the Sunday Advertiser where a full-page ad costs $11,677.

Since HNA's $15.11 cost-per-thousand figure is based on the combined circulation of both papers, it will rise if the Star-Bulletin closes and Gannett Co.-owned HNA fails in its attempts to boost the Advertiser's circulation accordingly.

Shutdown announcement
Kay issues preliminary injunction
Text of injunction halting shutdown
Text of refusal to lift injunction
Emergency stay denied

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