NewsFuture: Online earnings may be tiny percentages of overall newspaper revenue, but they dominate a growing local online media business. And when U.S. newspaper-broadcast ownership rules change, broadcasters adept at online-on-air combo sales may see a lot of hidden value in those online newspaper sales. By Gordon Borrell.
NewsFuture
By Gordon Borrell.
I?ve had a series of interesting conversations
lately, keyed around a new report on local Web site earnings. The study pulled
back the veil on who?s making what on the Web. The basis of the report was
data from more than 400 daily newspapers and TV stations, plus months of
tedious research into how the local Internet dollars are flowing for
competitors like AOL, AutoTrader.com, Monster, TV stations, Yellow Pages and
others.
The result was a fascinating peek at how $1.65
billion in local Internet ad dollars are being divvied up. The big headline
was that sites run by daily newspapers were snaring 40 percent of those
dollars. We found:
Small newspapers ? or the 85 percent of the industry whose
circulation is 50,000 or below ? average $5.84 per unit of print circulation.
Medium-size newspapers with circulation up to 200,000 average
$13.69.
Large newspapers above 200,000 circulation average $20.41.
Combined, the industry?s 1,475
daily newspapers generated $655 million in local Internet ad dollars in 2002.
Local broadcast TV stations, of which there are about 1,300, generated barely
one-tenth that amount.
2002 Newspaper Online Revenue By Print Circulation
While we can draw some broad conclusions about
Internet earnings for the newspaper and TV crowd, not everybody fits the mold.
A few months ago I called an executive at one
large newspaper from whom we were trying to extract online revenues for our
report. Armed with the knowledge of revenues from 140 newspaper sites at the
time, I boldly guessed how much his online operation was making.
I was wrong by a factor of 2.2. His site was
grossing millions more than I had guessed.
About two weeks later someone from a mid-size
newspaper came up to me after a conference presentation. He handed me his
card, and I asked the circulation of his newspaper. By then I was armed with
the knowledge of revenues from about 200 newspapers, so I boldly guessed that
his site made about $350,000.
I was wrong. It made $0.
Just the other day I got a letter from a
publisher in Connecticut whose site, I had projected, could be making as much
as $430,000 if his Web site adopted best practices. I truly thought the
revelation would shock him and that he?d pick up the telephone and say please,
oh please, tell me how!
His note was brief and to the
point: ?If our newspaper does as poorly as $430k,? the publisher wrote, ?I?ll
fire everyone involved!?
And so goes the business of trying to fit Web
sites earnings into a mold.
The fact is, some sites run by
daily newspapers are doing phenomenally well compared with their peers. It is
typical to see some newspaper sites making three to four times the average for
their peer circulation group. Yet there are others that are trying hard (even
a few that have won awards for spectacular site features) but performing poorly
on the revenue side.
This inward look at how well the newspaper
industry is doing is a step toward an important benchmarking process. It shows
newspapers how well they compare against their peers. But as my colleague
Clark Gilbert from Harvard Business School says, the best newspapers are just
the prettiest of the ugly stepsisters.
Looking outside the industry, we found that six
public newspaper companies generate less than half as much revenue per unique
user as six of their non-newspaper peers. This group includes AutoTrader.com,
Monster.com, HotJobs, eBay, Yahoo!, and CNET Networks. While the newspapers
generated an average of $7.93 per unique user in 2002, their competitors
generated $17.12.
I have a theory for this. All the competitor
sites mentioned are pure-play Internet companies that a) have complete
dependence on Internet revenues and b) are not dependent on financing,
resources or demands of a parent company focused on a competing medium.
One might argue that Monster and
AutoTrader.com aren?t exactly pure-play Internet companies. Monster is owned
by TMP Worldwide, which makes money off traditional print businesses like
Yellow Pages and newspaper recruitment ad commissions. And AutoTrader.com?s
parent is a print classified company as well, Trader Publications, publishers
of Auto Trader magazines. But TMP derived nearly half its revenue from online
operations last year, and you could say that AutoTrader.com derived 100% of its
$80 million from online products because it is indeed a separate entity owned
only partly by Trader Publications. (eBay also happens to be part-owner of
AutoTrader.com, along with Cox Communications
Communications.) When it comes to per-unique-user revenue, even with that
print affiliation, AutoTrader.com and Monster.com blew the rest out of the
water. AutoTrader.com had $33.33, Monster.com $37.91.
Perhaps the strongest evidence of
all that newspaper companies just can?t be focused on the Web rests in
how puny their Internet revenues look on the corporate spreadsheet. We found
that online revenues at a dozen public companies averaged barely 2% of total
company revenues. For a company the size of Journal Register Inc., which owns
23 newspapers, its 2002 online revenues of $4 million represent the equivalent
of one of their smallest newspapers.
Online Revenues as a Percent of
Total Newspaper Revenues
|
|
|
|
|
|
| Journal Register | $ 4,000,000 | $ 407,754,000 |
0.98% |
24,348 |
| Lee Enterprises | $ 8,800,000 | $ 580,306,000 |
1.52% |
25,000 |
| Media General | $ 6,100,000 | $ 836,800,000 |
0.73% |
36,000 |
|
NYT Regional Newspapers |
$ 2,900,000 | $ 408,750,000 |
0.71% |
44,000 |
| Gannett | $ 86,000,000 | $ 5,651,000,000 |
1.52% |
57,447 |
| McClatchy | $ 22,200,000 | $ 1,081,898,000 |
2.05% |
127,273 |
| Knight Ridder Inc. | $ 55,300,000 | $ 2,841,594,000 |
1.95% |
129,032 |
| Belo | $ 19,500,000 | $ 1,427,764,000 |
1.37% |
235,000 |
| Tribune | $ 76,699,000 | $ 5,384,428,000 |
1.42% |
240,000 |
|
New York Times Co. |
$ 71,800,000 | $ 2,670,257,000 |
2.69% |
1,600,000 |
| Dow Jones | $ 50,230,000 | $ 1,559,173,000 |
3.22% |
1,800,000 |
| Washington Post | $ 35,700,000 | $ 1,082,300,000 |
3.30% |
1,900,000 |
[1] Media General, Tribune and Belo interactive divisions manage TV online
operations; therefore their total company revenues include TV station revenues
for a fair comparison
These are very small earnings, even though the
growth of Internet operations at the public companies last year averaged 23% while
overall newspaper revenues were flat. Yet we shouldn?t be too hard on
newspapers, and in particular the public companies. When we compared their
Internet earnings against the newspaper industry?s average online earnings 11
of the 12 public companies outperformed their circulation peer group for
Internet dollars per unit of circulation.
So where is the industry headed? Does all this
analysis of newspaper online operations provide any meaningful insight into the
future? Yes, absolutely. If the past is any predictor of the future, I?d
say that daily newspapers will continue to be formidable Internet aggressors.
Their 23% revenue growth last year outpaced Internet advertising growth.
They have successfully used their print product to seize a dominant position in
local Internet advertising. About one-third of all sites were profitable in
2002, with many more reporting month-to-month profits by the fourth quarter of
last year. It is a dominant position in a growing business where a key
indicator of future performance ? audience ?share? ? is enormously
undervalued. The Internet surpassed newspapers last year in terms of the time
consumers spend with the medium, yet online operations generated less than 3
cents to every dollar generated by daily newspapers. (But is it a dominant
position in a growing business, or a marginal business?) We?re seeing a lot
of activity by local TV stations and even local cable operators trying to tap
into local Internet dollars. But their efforts pale in comparison to the seven
years of aggressive build-out, promotion and relationship-building that
newspapers have put into their Web operations.
Finally, these Web operations may be tiny
revenue blips on a newspaper?s income statement, but their intrinsic value is
likely to skyrocket when the Federal Communications Commission allows
cross-ownership of TV and newspapers in the same city. Here?s why: In our
research into TV station Web earnings, we found that the average station
generated $3 in new broadcast advertising to $1 in online advertising. In
other words, TV stations were able to use an online-on-air combo package to
generate advertising dollars that the station would not have ordinarily gotten. What does this mean? It
means successful newspaper Web operations are likely to be seen as multipliers
of broadcast revenues in any newspaper-TV ownership deal.
Online ad revenues won?t be puny forever. In
short order they have surpassed billboards and magazines, and before the decade
ends they will have grown larger than magazines and yellow pages. If, as I
strongly suspect, newspapers lose their print classifieds entirely, we could
see Internet surpassing newspapers in 15 years.
Editor?s Note: You
can find an executive summary of the Borrell report at
The
full report sells for $595.
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