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Panpa Bulletin : March 2007
PANPA Bulletin March 2007 31 interactive insider Here's a fascinating economic possi- bility, first run by me by a long-time newspaper executive and interac- tive-media pioneer: In a few years, the daily newspaper will be a break-even proposition. Local media companies may be as profitable as ever, but they'll make their money on all the ancillary products --- the website(s), the podcasts, the direct-mail magazines, the hyperlocal print and online editions ... the list is endless. Does this theory make sense? Right now, metro daily newspapers in the US typically generate profits in the mid-single digits as a percentage of revenue --- although the number varies radically depending on a wide range of factors. (Internationally, margins are typically much lower due to larger news holes, higher re- porting costs and substantial competition.) At smaller papers in the US, operating profits are usually much higher --- ranging from 20 percent to 40 percent and more. (At a newspaper group meeting I attended a few years back, all of the publishers heartily congratulated one of their colleagues for achieving a 71.4 percent margin one month. They were thrilled; I was appalled.) My friend's theory is that the fixed costs of publishing the daily paper will remain, well, fixed --- running the presses, buy- ing newsprint and ink, operating delivery trucks and paying carriers, employing photographers and reporters and editors, and so forth. Over time, he believes, those costs will essentially match the revenue of the daily print edition --- so it will neither make nor lose much money. The publisher will remain profitable by generating healthy margins on all of related products it offers. Pro t centres The first and most obvious profit centre will be the papers' website or sites. According to MediaNews Group vice chairman Dean Singleton, online revenue already contributes about six percent of the company's revenue, but 15 percent of its profits. In simple terms that means the company's interactive margins are much, much higher than its "traditional media" (daily newspapers, a TV station and some radio stations) margins. Niche products like automotive tabloids, real estate books, "web-to-print" entertain- ment weeklies --- all, too, can contribute substantially. Especially since most (at least, some) of the core infrastructure --- phone room costs, ad sales expenses, office space, the press --- is charged to the daily. While the cost of printing the auto tab is charged against financials, many of the other costs are absorbed by the parent organisation. (All of this depends, of course, on how pernickety the accountants are.) And some, or most, of the content is generated by users and/or advertisers. That's not entirely free, but cheap. Then there are podcasts and mobile feeds --- news, information, restaurant list- ings, text ads and the like. Right now these are experimental, especially when it comes to the economics. But no one offers such services because they're expected to lose money forever, right? At some point, there will either be a viable business model or they'll fade away. Miva, the UK ad agency, is selling out its entire inventory of targeted text ads to mobile uses --- admittedly, very limited inventory --- at up to £1.50 (about US$3) per ad. That's not a "cost per thou- sand." That's per ad. Sounds like it might be viable already. Free papers Metro International publishes free newspa- per in more than 100 major cities. Dozens of other companies --- Belo Corp., the Washington Post Co., The Bonnier Group, Daily Mail and General Trust, Clarity Media, among others --- also publish free dai- lies. Some are profitable now; others still print red ink. But each of those publishers believes the free paper, with a business structure substantially different from a traditional daily (especially in the US), will be significantly profitable within a few years of launch. Many newspapers now offer direct mail. Profitable? You bet. Online radio and streaming video? Probably not profitable --- at least not yet. Cable-TV news operations? Some profitable, some still experimental. The list goes on. The days are gone when a local media company could publish just "the newspaper" --- if that company has any hope for the future. The newspaper executive who posited this theory is no slouch when it comes to understanding newspaper economics. He began his print career while he was in high school;,has both editorial and sales experi- ence, and moved into what we now refer to as "interactive media", running one of the first newspaper bulletin-board services be- fore most people had heard of the internet. Why doesn't he want to be named? Simple. His interactive-media department, at a major US newspaper, has higher margins than print, and his newspaper economics theory isn't necessarily popular or widely accepted among his print brethren. So is he right? I'm betting more with him than against him, that's for sure. Peter M Zollman is founding principal of the AIM Group and Classi ed Intelligence, consulting groups that work with media companies to help develop pro table interactive media services. Contact: pzollman@classi edintelligence.com, (407) 788-2780. Will the daily newspaper become a break- even proposition? Peter M Zollman argues that websites and other ancillary products is where the pro t lies in publishing. Local media companies may be as pro table as ever, but they'll make their money on all the ancillary products --- the website(s), the podcasts, the direct-mail magazines, the hyperlocal print and online editions ... the list is endless.