Fairfax Media will be forced to substantially renegotiate its hard-copy ad rates, leading industry executives say, after the ailing giant revealed the page size of its major metro mastheads would shrink by 30%.

Sunday March 3, 2013 will mark the last day the company will publish its traditional 55×11 (centimetres by columns) broadsheets in Sydney and Melbourne, but well before media buyers and agencies will have bedded down new page rates for the smaller 38×7 replacement.

But does 30% less real estate mean 30% less ad revenue? The picture, as always, is a complex one but there is little doubt existing rates will come under severe pressure.

Mat Baxter, CEO of the local arm of global agency Universal McCann that looks after massive clients such as Coles, the Australian government and L’Oreal, says the “whole advertising market was waiting with bated breath to see what the pricing strategy would be”.

Fairfax’s traditional mode of charging by column centimetres could be abandoned by the media giant but “the market’s saying because you’ve now got less ad space and you charge on the basis of less space you’re obviously going to have less revenue”.

“So you’ve got to do something, you’ve got to get a rate increase in,” Baxter said. “Given the way that ad rates operate in print, which is a single-column centimetre rate, by virtue of the book being smaller buyers are going to be buying single-column centimetres, which is an automatic loss of 30% by moving to that format.”

Major advertisers such as the big four banks and the supermarkets remain steady year-to-year and will play hard ball on the amount Fairfax hits them up for. “You can’t just conjure up new advertisers,” Baxter said.

And the rubber will hit the road almost immediately as the end of the financial year rapidly approaches, with the possibility that some major advertisers will pull their spend completely if the uncertainty persists.

“They shouldn’t leave it too long … uncertainly breeds avoidance, advertisers like to know what their costs are going to be and when they’ll change and this change is a lot closer than it appears,” Baxter said.

David Gaines, CEO of the country’s 11th largest media buyer Maxus, told Crikey that “absolutely in the short term there’s going to be some negotiations between buyers and sellers”, especially among premium clients that book full-page ads.

“If they’re delivering audience numbers and they can maximise the yield on the available space then ultimately they should be in a position when they should break even,” he said.

The slack could be taken up by Fairfax in the form of increased pages and the total advertising space would remain the same.

“Ultimately we’re buying audiences, we’re not buying newspapers … it’s going to be down to audience delivery, that’s the number we should be focusing on,” Gaines said.

Simon Davies, head of print at OMD, says the company had yet to provide any transparency on its plans. He will be renegotiating rates over the next few months.

“We don’t have any transparency yet on the on the plans for that, our expectations is that we will have a rate card that Fairfax will produce that is different to the current rate card. A compact page is not the same as a broadsheet front page,” he said.

He suggests Fairfax will embark on “yield management” with major ad buyers that currently receive 20% or 30% discounts to claw back margins on full-page rates that top out at $70,745 (plus GST) for a colour page in the Monday-Friday Sydney Morning Herald, $88,480 for the Saturday paper and $46,994 for the Sun Herald on Sundays.

“It’s not as simple as saying a certain per cent of revenue,” Davies said. “Everyone has agreements  in place, for example, various clients that are given discounts on volumes based around full pages and things like that.”

He says Fairfax should be able insulate against potential revenue declines. “Changes in overall rate doesn’t translate directly into a potential revenue decline. There’s a big yield management part of that from Fairfax as well,” he said.

Fairfax might experience a temporary circulation bounce when its initial tabs hit the streets on March 4. But the longer-term view is neutral, and in the current dire advertising climate for print, possibly even negative.

A 2005 study by the World Association of Newspapers revealed that broadsheets that downsized could only count on a long-term circulation jump of about 1% after an initial increase of 10-15%. Hundreds of titles have reduced their size over the past 10 years, as proprietors scratch around for any opportunity to cut into their fixed cost base.

In the UK, The Scotsman, The Independent, The Guardian and The Times have all transitioned to tabloids but have recorded only anemic circulation increases in the context of the broader industry falling off a cliff.

Before the changes announced yesterday, Greg Hywood was under serious pressure from institutional investors  to spin off The Age and The Sydney Morning Herald — both of which operate at or close to a loss — but said because print revenue was still half-a-billion dollars it was wiser to reduce head counts and printing and distribution costs instead.

The move to tabloid will generate $44 million a year in savings, according to analysts.