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Just how much money are online newspapers losing?

One industry that is feeling the impact of technology more than most is the newspaper industry.

The internet has made print media less relevant and has created a generation who expect content to be available for free. The business model of newspapers has been turned upside down and its only in the last year that newspapers have started to make meaningful change to their products, revenue models and cost bases.

  • Several media companies have commented that digital income is now ‘significant’
  • Most newspapers now have tablet versions
  • Digital subscriptions have been introduced for most broadsheets and some tabloids
  • There is increasing segregation between free content and premium paid for content

But the media companies have been very tight lipped on whether digital is actually making them any money, preferring instead to occasionally reveal web visitor or app downloads statistics. Dollar data is hard to find.

Recently though, there’s been enough data released to start to piece the profitability puzzle together

Digital Newspaper Montage

What are the emerging news formats?

Three formats have emerged in the US, UK and Australian markets. Rupert Murdoch to his credit has driven much of the change, coming the position of being dominant in all the markets and having the resources and patience to experiment. The formats are:

  • Print – revenue from advertising and cover price; customers are mix of subscribers and retail purchasers
  • Web – revenue from display banner advertising; customers view free content through web and mobile browsers
  • Digital Pass – revenue from monthly subscription; customers view tablet/mobile apps or premium webpages that are behind paywalls

The Digital Pass product has developed hand in hand with tablets, notably the iPad. A primary reason cited by consumers for buying tablets has been to read daily news and books. Tablets deliver a superior user experience to mobile web and because they are perceived as different to PCs, the perception that web content should be free has some what been broken.

The internet created a generation who believe online content should be free.Tablets have broken that perception

What are the readership numbers by each format?

Readership statistics across formats are hard to come by. Recently though Australia’s Fairfax Media started to produce a range of statistics for its Metro division. Readership statistics can be pieced together using a couple of assumptions.

Fairfax Metro is a good example of a National and Metropolitan newspaper business that’s neither an early adopter nor laggard. The metro division comprises of:

  • The Sydney Morning Herald/Sunday Sun Herald (SMH) – broadsheet quality newspaper for Sydney
  • The Age – SMH’s sister paper covering Melbourne
  • The Australian Financial Review (AFR) – the equivalent of the Financial Times in Australia
  • Online versions of SMH, Age and adapted versions for Brisbane and Perth
  • Subscription tablet/mobile app versions of SMH and Age
  • AFR.com – a paywalled online version of the AFR that includes financial analysis tools

The results cover above cover only the SMH and the Age, these being the bulk of the division by volume. Desktop and Mobile/tablet web are the Web format being accessed from different devices. Mobile App and Tablet App represent the Digital Pass format viewed on different devices. Assumptions are at the end of this post.

The data suggests that print and digital pass readers who have paid for the content, read more pages than web browsers who may be less loyal or simply search traffic.

Overall the message however is that web and digital readers are now more important in terms of eyeballs than print readers.

The growing success of Paywalls and Digital Pass subscriptions

A consistent pricing point of USD 3 to 5 per week for Digital Pass subscription plans is starting to emerge, driven mainly by Rupert Murdoch’s News Corporation.

Publication Country Market Digital Pass subscription
The Times / Sunday Times UK Quality daily £4 / week
New York Times US Quality daily $5 / week
The Australian Australia Quality daily A$4.50 / week
SMH/The Age Australia Quality daily A$2.25 / week
Wall Street Journal US Financial daily $4 / week
Financial Times UK/global Financial daily £5.19 / week
Australian Financial Review Australia Financial daily Repricing imminent
The Sun UK Tabloid daily £1.25 / week
Herald Sun Australia Tabloid daily $2.95/ week

How profitable is each format?

Dollar data for digital is starting to emerge. Fairfax claims that 14% of its revenue now comes from digital, which I am taking to mean both advertising and subscription plans. The Economist earned £20m in digital advertising revenue last year out of a total income of £351m.

We can estimate the income and costs per weekly subscriber using the relatively detailed data that Fairfax delivers.

This analysis covers all of Fairfax Metro including AFR. In this analysis, a ‘subscriber’ is
- Print: the average daily circulation
- Web: the average weekly number of unique visitors divided by 7
- Digital Pass: the number of digital subscribers

Shared costs, such as journalists and news production have been allocated equally. While costs are in Australian dollars, given the level of estimation and the relative exchange rate, you can broadly take the values as US dollars. Full assumptions are at the end of this post.

Unsurprisingly, the only profitable format at the moment is Print. It is making about $7.19 per subscriber per week.

The web version appears to be loss making, but its revenues are reasonably significant at $10.85 per subscriber per week.

This analysis would apply to similar newspapers to those at Fairfax. Newspapers like The Guardian however, which enjoy much much higher web visitor numbers are likely to be profitable online in themselves.

 

News site advertising revenue

Advertisers trust news sites more than most web content, and established newspaper brands with clear demographics even more so. RPM (revenue per thousand page impressions) appears to be about $22, with equivalent print advertising RPM (revenue per thousand pages read) of around $65.

While online RPM is lower, at $22 this is a much higher rate than advertising on general websites generates ($10 would normally be considered as good).

 

Digital Pass subscriber revenue

In this analysis we have assumed no advertising income from Digital Pass and so this format looks very unprofitable. Some tablet versions are running without ads, some with. This will be one area that will develop as media companies learn readers’ appetite for ads given they are paying subscriptions. Should ad income start to match that of the web format, the digital pass format has the potential to become profitable.

 

The way forward for newspapers

In the short term though, newspaper businesses should reduce their cost base. With declining print volumes, that format will become less profitable and less able to subsidise the digital formats. To date, web and digital formats have been seen as adding incremental margin, leveraging the cost of journalism that has ‘already been paid for’ by Print. That attitude will need to change with costs coming down such that each format can stand on its own.

Assumptions
1. Of Fairfax Metro’s $189.2m of digital revenue in HY12, $10m was in classifieds.
2. The Fairfax Metro cost base is proportionally the same as Fairfax as a whole.
3. Staff, production promotion, and other costs are split per subscriber (print, digital) or per individual reader (web)
4. Web and Digital incur no printing or distribution costs
5. Each print reader views on average 20 pages in each publication
6. Each Digital Pass subscriber is paying the full advertised price
7. Fairfax’s half year results for period to December 2011 and current circulation statistics are reflective of its position
8. Weekly digital subscription rates cover daily access on to web or app; they do not include any print copies
References

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