In the past, financial analysts covering the newspaper industry haven’t paid much attention to online results. They’re more focused on quarterly results, which don’t have much to do with online. Indeed, despite several years of strong growth from online services, newspapers are still, typically, just getting five percent or so from online.
A new report from Merrill Lynch’s Lauren Rich Fine –covered by E&P’s Jennifer Saba — reinforces the lack of enthusiasm. Fine figures she’ll be long retired from crunching numbers before newspapers get even half their money from online.
“Even if the rapid [online] growth continues for the next few years, we don’t see online representing over 50 percent of newspaper ad revenues for at least a couple of decades,” says Fine (per Saba). Fine’s back-of-the-envelope projection assumes double-digit growth for online ad revenues through 2012, eventually slowing to five percent. Meanwhile, print advertising is estimated to decline 1.5% annually.
The only problem with Fine’s calculation, of course, is that she can’t responsibly incorporate a “tipping point” scenario, where online reaches such a level that print drastically falls off. It is a real problem that is looming newspapers — especially considring that a single print user continues to be worth 10-20 online users. Such a tipping point is bound to happen within ten years, don’t you think?
I think most of these projections deal with ROP advertisers, when a larger threat looms with preprints. Can you imagine how rapidly Sunday circulation will fall when preprint users migrate fully to the web?
I find it also ironic that there hasn’t been any meaningful discussion of the movement of public notice advertising out of newspapers. The lack of discussion no doubt stems from the fact that metros don’t carry much public notice advertising. The politicos hate newspapers and they are changing legislation as fast as they can to reduce the amount they are required by law to spend with newspapers. And that revenue doesn’t go to the web, it just evaporates.
Well, here’s one way to look at it: if print revenues fall off drastically in 10 years at your “tipping point,” then online revs may make 50 percent of the total at that time, 10 years ahead of LRF’s projection.
Two ways to get to that split: online grows or print declines. Both are happening.
Actually, the more pertinent “tipping point” to look for, if it is even possible (and many say it is not), is the point where online makes enough money to support newsgathering, sales and its own operations, while allowing publishers to cut out the high fixed costs of printing and distributing paper products.
Peter, I think it’s also important to note the low overall percentage of newspaper online revenue that’s from direct sales. The majority of most newspaper’s online revenue continues to come from what’s called the “upsell.” When I say the majority I mean close to 80% or more.
That upsell is in fact a forced buy. When a person places a classified ad their sale into online is considered “assumed.” When an advertiser purchases a contract or a retail display ad the online portion of their buy often isn’t disclosed to them and/or is merged into their rate.
I think it’s going to be eight years or less, but it won’t happen without all of us selling online advertising building the value of what we sell.
Andy Vogel
what if at some point, there is a tipping point, a point at which a wide swath of audience realizes, ‘I like online better.” Are we prepared for that scenario? How much money do we need to make online to keep the business afloat?”
The cool thing is that people are attacking this from both sides. That is, both traditional media companies and the new media (online only for the most part) independents.
To be honest, I’m not there yet, but I can see it as a possibility.
I do think independents need/want to have some kind of print product weekly for the next decade or so. These print products will be based off the web counterparts, though, and not vice versa.
Lots of good thoughts here, though.
-kpaul