The New York Times reports on the economics of the web. It takes a lot of work to make lots of money. It takes audience, and lots of it.
But to make $50 million with a big staff-produced content-rich guitar site, sponsored by, say, Fender and Gibson, a site would have to generate more than 200 million page views a month, Mr. Liew estimated.
A site aimed at a specific demographic, like teenagers or Asian-Americans, would need to generate 800 million page views a month, by Mr. Liewâ€™s reckoning.
And for a general-interest site, the ad rates go even lower, so traffic would need to be much higher to generate $50 million â€” about four billion page views a month, which would put it in the top 10 of all the sites on the Web.
That $50 million figure is about the current revenue of a 60K to 80K daily newspaper. Think about that for a moment.
This reminds me of an old post from Vin Crosbie.
… as print edition circulation declines, the average newspaper will need between 20 to 100 website users to replace the revenues lost from each former print edition user.
Unless ways can be found to increase the per user revenues generated from newspaper websites, newspapers need to gain fantastic numbers of Web site users just to replace the declines in print edition revenues. A 50,000 circulation daily would need to gain a million to 50 million Web site users to postpone the time when it’s no longer economically feasible to produce its printed edition!
The average daily newspaper is never going to pull an audience that big. So do we throw up our hands in defeat, or try to figure out if we can grow audience sufficiently enough to start generating revenue that really matters? It’s the big, daunting, unanswered question of our industry.
Within current local news site economics, the answer is, “no.” However, we don’t really know what happens when a local news web site really starts to dominate its market.
In theory, such dominance should make possible:
- Increase rate to local advertisers;
- Deliver better value at current rates (helping to retain and bring in new local advertisers);
- Create more ad inventory and leverage the long tail;
- Create and diversify revenue-generating products.
In the global market place, dominance has paid off for the likes of Google and Yahoo! I’m not sure the model scales down to local DMAs, but I think we need to try and find out. It’s our best chance for survival.
Also from the Times piece:
He (Tim O’Reilly) noted how outfits like Weblogs Inc. and Gawker Media create multiple sites, â€œpublishing blogs like they were books, with some expected to succeed and others to fail.â€?
This reminds me of something Steve Outing wrote about a few times a decade or so ago: Newspapers need to generate multiple revenue streams. No one advertising stream, no single revenue model, is going to be our ambrosia.
We also need to create multiple content streams. The more types of content, the more ways we can present and deliver it, the more benefits we’ll realize. More content and more types means bigger audiences and more revenue opportunities.
Back to the Crosbie piece:
They (newspaper sites) are profitable mainly because they are subsidiaries of the printed editions. The print operation generated almost all of those Web sites’ news content and most of their classified advertising revenues. Borrell’s recent survey showed that 75 percent of the sites’ revenues come from ‘upsells’ of the traditional ‘Big Three’ printed classified advertising categories of real estate, automotive, and recruitment.
In his piece, Crosbie sees newspaper.coms as subsidiaries of print editions as a negative. I’m not so sure. Newspapers have a tremendous advantage over your average start up. As the Times article notes, it either takes lots of venture capital to create a large scale start up, or you need to start very small and hope and pray your idea catches on and you can incrementally grow audience and revenue.
Our advantage is that up sells can be our venture capital. We also have the most powerful marketing tool in our markets: The print editions.
Unfortunately, too many newspapers are making three fundamental mistakes. Either they aren’t generating enough rate revenue (up sells to print ads); or, if they are, they’re not applying most of that revenue to audience growth initiatives, and/or they aren’t using their print edition aggressively enough to drive audience to their web sites. (See what Chris Hendricks said previously about using print to promote online).
The average newspaper should be able to easily generate at least 5 percent of its revenue from online. Ten percent is pretty easy, too. That’s nice revenue to fund an online operation. A 50K circ paper or larger could do a lot of sweet stuff with an additional $2 million annually added to its online investment portfolio.
For publicly traded companies over the past eight or nine years, when rate revenue really started to grow, standard operating procedure was roll that revneue overall profitability, hoping to off set print loses.
It was a vain effort. Wall Street was not impressed. The revenue hasn’t been big enough to “move the needle” or really off set print declines (getting close recently, though).
Hindsight is 20/20, but we all would be so much better off today if that revenue had been treated as venture capital and aggressively reinvested in online operations. Those investments could have paid off in new revenue programs, but more importantly, we could have been doing more to grow online audience.
If we’re going to bridge the gap between print and online revenue, we simply must do a better job of pulling more people to our web sites. If we do that, we might find the path to sustainable business models.
UPDATE: Greg Sterling, my panel mate at Kelsey on Wednesday, as a related post.