There’s an interesting look at the problems of newspapers online by Robert Ivan at Seeking Alpha, focusing on the New York Times. I don’t know about the assumptions — I’ve seen the cost of the NYT’s newsgathering put at $200m — and I’ve simplified it a little, but here it is:
Despite the highest readership of any newspaper in the United States, the New York Times only generated $330 million in online advertising in 2007. Total operating costs for that same year totaled $2.9 billion.
It is widely reported that total newspaper operating costs would be reduced by 35% if newspapers eliminated their print product [is that assumption really right?]. Using the NYT example … costs could be reduced to $1.9 billion.
Online advertising in general is growing approximately 12% year over year. The New York Times is following this trend.
NYT online advertising revenue is projected to be ~$350 million or $29 million per month.
The NYTimes.com reaches an average 15.6 million people per month (quantcast) and newspaper websites in aggregate reached 69.8 million people (naa).
65.4% of NYTimes.com readers come from the USA.
NYTimes.com is reaching approx. 3.3% of the US population (15.6 million x 65.4%) =10 million/(305 million)
Revenue per person:
- $29 million month/15.6 million unique monthly visitors = $1.87 per unique per month.
Each unique reader is worth $22.40 annually in online advertising revenue (a far cry from the 1 subscriber = $1,000 which is what it was before the arrival of the internet).
The gap to break-even is still a whopping $1.55 billion.
If advertising rates stay the same, The New York Times needs to raise its unique audience 5.4 times in order to break even. Here is how it breaks down:
- 5.4 x 15.6 million uniques per month =
- 84 million uniques per month x $1.86 per unique =
- $158.6 million per month x 12 months =
- $1.9 billion annual online advertising revenues = Break Even NOT YET PROFITABLE
Questions for further examination or the “Stalin Problem” (reality):
- Is it unrealistic for NYTimes.com to grow their national audience reach much more than 3.3% considering their print audience reach is ~1million or roughly 0.3%?
- Generating 84 million uniques per month would make NYTimes.com the number 5 website in the entire world, ahead of Wikipedia.org
Preliminary conclusions:
- Pursuing online audience growth strategies to grow revenue may not be the best way to grow revenue
- Absent online advertising innovations, newspapers must seek alternative revenue streams to achieve economic sustainability.
Retrenching on online growth strategies cannot be an option, even if those revenues won’t support the current set-up. Those operating costs are the key here. It’s an interesting exercise to eliminate print costs as it reminds us how much the current newspaper business is about the ‘paper’ bit ($1bn) vs the ‘news’ bit ($200m, by your calculation). But what’s the additional $1.7bn that’s not newsgathering being spent on? And how many of the NYT’s headcount of c. 12000 (can someone correct/update that figure) are actually creating content? How does the NYT’s headcount compare to, say, The Guardian?
Well the NYT has an editorial headcount around 1,200 — compare it to the Telegraph with an editorial headcount currently around 500.
And I think his percentage on abandoning print is way out…
Imagine if the newspapers put an interactive letterhead around all the external emails sent by their employees and then charged companies to advertise in this letterhead.
Companies seem to ignore the single largest online branding/advertising venue available: their own regular external emails. Why not use these emails to market the senders company?
You have a website.
You send emails.
Why not multiply your sales-staff by “wrapping” the regular email in an interactive letterhead?
No other marketing or advertising medium is as targeted as an email between people that know each other (as opposed to mass emails). These emails are always read and typically kept.
Isn’t part of the problem here though the unrealistic manner in which newspaper audiences are measured online which is the basis for advertising CPMs? Imagine if print sales discounted the number of times a reader bought a newspaper and merely reduced them to the status of unique monthly buyer.
Here’s Frederic Filloux on cost structure:
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