News and Fairfax should shut their online newspapers?

Cool headline hey?

I thought I’d borrow a tactic from the mainstream press to get your opinion on a hypothetical scenario.

I had breakfast with a friend of mine who is a lot smarter than me yesterday. We were talking about media and the apparent will of some operators to completely ruin what are extremely robust ‘traditional’ businesses to try and make a fraction of that revenue online in what is a much smaller overall category with 10’s if not 100’s more competitors.

Now this guy isn’t another media loony like me, he’s actually remarkably sane.

From my research, the newspaper advertising market is  worth over $4b in Australia. 30% of that is classifieds … the rest is retail or national. That means around $2.5b is non classifieds.

The below newspaper data is sourced from The Newspaper Works, primarily a presentation called ‘The Australian Newspaper Market March 2009’ which is available on their website (signup required, heh)

Metro newspapers account for around $2.3b of that figure. Seeing 70% of revenue is non classifieds, metro newspapers are seeing around $1.6b of revenue come through from brand or retail advertisers.

That’s $1.6b in what we digital people would call DISPLAY revenue.

The total digital display pie in the 12 months to June 30 2009 was $491m. That is the total – across all categories and that includes performance advertising, networks, affiliates etc. This data has been sourced from the most recent IAB PWC Digital Advertising figures (to June 30, 2009)

It would be generally agreed that newspapers offer operators better yield/revenue per reader than digital. So, in essence, a print newspaper reader is worth more than the same reader online.

Given the digital display pie to June 30 2009 was $491m … how much was the revenue proportion going to the online versions of newspapers – primarily News Digital Media and Fairfax Digital ones?

This is a guess, but I’d say around the $80m mark.

$80m versus $1.6b. It’s a big difference. Hell, my estimate could be 25% of the real figures (say the real figure was $320m – which it isn’t) and the diffence would still be massive.

Now – based on $80m being the figure … even if the display market for these publications grew at 15% for the next 10 years the total revenue pie for them would be just over $300m. That’s based off 15% annual growth EVERY YEAR for the next 10 years.

Even if newspapers declined at 15% YOY for the same period (which is doubtful considering their track record over the last 10 years) their metro revenue exc. classifieds in 2019 would be around $314m

So newspapers now are commercially very viable, with steady readership, sales and advertising dollars. They absolutely dwarf their online cousins in a business sense.

So why do their owners seem so determined to kill them? And why are they offering pretty much all their print content online, for free?

Maybe Murdoch is looking at charging as he’s done similar numbers and seen there is really no upside as it currently stands for migrating his perfectly profitable print readers online. He’s seen he could turn a display ad business that is worth almost $2b into something that could potentially be worth not much more than $600m a year.

With that in mind … should Fairfax and News shut down their current online papers and offer a basic feed service to users through their a national or state based masthead?

Then they can focus on making their newspapers a better product and trying to revitalise them and protect their content and unique offering? One area I think print newspapers nail that online hasn’t is the curation of content. Organising and presenting content in a compelling way that appeals to the mindset and needs of the reader.

I’m not saying they should shut them down, but it’s worth thinking about especially given all the current debate.

And crazy ideas are sometimes good ones … at least to consider.

Can I repeat, I’m not suggesting they shut them down.


7 responses to “News and Fairfax should shut their online newspapers?

  1. This topic is driving a lot of debate. I attended a talk by Richard Freudenstein, CEO of News Digital Media last night.

    Being part of the Murdock clan, it was interesting to get his candid thoughts on the future. I got the sense he favours the subscription model. He also mentioned the trial being carried out by News Corp in the UK;

    What date has he been charged to implement charge for content, we all asked. The interviewer cheekily suggested the secret News Corp project codename might give this away; ‘2011’. He was greeted by a wry smile from Mr Freudenstein.

  2. Hi cobber

    Profit, sometimes known as ebit or ebitda or contribution margin or any other set of words.

    Revenue isnt all that important if costs are higher.

  3. Great analysis Ben.

    As you’ve pointed out newspapers (at least in this country) are a terrific business.

    Digital on the other hand either requires category or vertical dominance in specific markets.

    Or in the case of commoditised markets (e.g. increasingly the creation of news content) you need global scale to make margins.

    Although comparatively smaller than print I don’t see anyone walking away from the digital ad market anytime soon.
    Its a matter of getting the money out of the market sensibly.

  4. I’m a numbers man so I love the analysis – great job. The logic is sound but….. there’s always one of those. I think the real threat is a new generation coming through that digest their media in a completely different way. It’s mainly about contnet being pushed out which the print version of newspapers doen’t do (rss does). I actually think the rate of decline will hit a tipping point where the 15% you suggest will actually become an exponential decline. Now I’m a newspaper fan – there’s an ergonomic that online just can’t meet – but I’m a boomer, my kids don’t see it that way. The major difference today is that your news comes from a multitude of sources – big difference here. The barrier is largely technology. It is still very cluncky to get your feeds set up and to register with those you wish to follow……. etc. There was no learning to know how to drive a newspaper, tv or radio. Today there is. But once we have more digital natives as a % of the population the more traditional newpapers will decline.

    Bottom line you could read that it’s newspapers that will control the migration of people to online from print – I actually think they have no control. People power I think.

    Great article by the way.

  5. So many publications are continuing to blindly “drive traffic” to their site and never the other way despite their revenues being much higher in print than online.

    But if I want to get a Sydney Morning Herald on the walk to work I don’t have to buy one, I can get a free one from a number of venues such as gyms or the Australian Museum where its freely available in the entrances.

    One of the gym managers said that they pay $500 for 6 months, 400 copies per day. So that’s around 50,000 copies per 6 months on working days only.

    Looking at these figures and having listened to Dr Jeffrey Cole in his recent Ad:Tech talk, perhaps the newspapers will survive, but as smaller businesses and probably only printing a single weekend edition with no week-day print run.

  6. Exactly.

    So what do you think the big australian publishers have been doing since 1996.

    A good defensive strategy for incumbents is to suck as much oxygen out of any new space as possible. The big publishers had the lowest audience acquisition costs for many years – just pull them across from their offline properties. This slows down the ability of new entrants to build their audience quickly at low cost.

    Could be argued that the reason australian webspace is as it is is because of the success of the dead hand of the big publishers.

    It’s taken the emergence of the digital generation – those that were in the early years of high school in 1996 to start to shift the gross metrics that has turned defence into a seige.

  7. Interesting take but as Liam so rightly pointed out, it’s about profitability, not revenue. Just ask the Trading Post about that…plenty of revenue, no profit = shut down. Many print businesses are no longer commercially viable and it’s only getting worse.

    The other important point is where is the audience and where will they be? Classifieds is a perfect example. Take the ‘Jobs’ category – sure you can charge $5,000 for a recruiter to place a job ad in your newspaper vs $100 for an online ad on Seek but where do the jobseekers come from? 5 years ago, there was still a case for print but consumer behaviour has changed so dramatically that you’d have to be a fool as a recruiter to spend $1 on newspaper ads to get candidates. There might still be some gold left in those print classified hills for some savvy salesmen but some point soon that revenue is going to drop off a cliff and disappear forever.

    News is foremost about currency (new(s) duh). Online destroys print in that area. Credibility and quality are important but why should they be delivered via black ink and broadsheets? As for the experience of holding something in your hand – smartphones and Kindle are already providing a tactile experience, it will only get better. It will become a way of life. It’s convenient for consumers and cheaper for content providers, everybody wins.

    Publishers are hardly trying to kill newspapers, they’re milking them for all they’re worth. The problem is, they won’t be worth much in the not too distant future and everybody knows it. If you doubt it, invest some of your hard-earned cash in Fairfax or News. Go on, I dare ya.

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