Revenue From Web Sites Remains Small -- But Profit Margins Are Swelling

By: E&P Staff Web sites continue to generate revenues for newspapers that are only a fraction of their income from print -- but online profits margins are skyrocketing worldwide, a report released Wednesday concludes.

Newspaper operating profits, the report notes, have been falling for several years, to about 23% for U.S. newspapers now.

"However, mature online operations are generating 40% and higher profit, suggesting that achieving a critical mass of online ad revenue translates to profit at a much higher rate than print ad revenues," the report says.

The unanswered question, is when will those online revenues grow big enough to replace print income? No time soon, the survey concludes.

"Benchmarking Newspaper Online Revenues, International Survey," prepared for the World Association of Newspapers (WAN) by Borrell Associates, declares 2006 "a turning point" in the newspaper Web business model for many of the world's newspapers.

"Web revenues continued to increase, while print revenues and circulation suffered gradual declines in much of the developed world," the report's executive summary says. " More significantly, while they still account for a small proportion of total revenue, many companies are reporting substantial increases in the profitability of their online operations."

Online revenue, the report declares, "is clearly on its way to becoming a strong contributor to the bottom line."

The WAN survey reported a fact that will be no surprise to U.S. publishers: "few Internet operations make up more than 10% of a newspaper company's revenue." In fact, it adds, outside the United States and Scandinavia, the amount is usually nearer 5% or less.

The WAN report also asserts that Internet pure-play businesses such as Google and Yahoo "now threaten local newspaper online advertising to an alarming degree." WAN research in the U.S. and Canada found that the pure-play's Internet revenue grew from a 15.3% share of the local online market in 2004 to 37.9 percent in 2006. In the same period, newspapers' share fell from 44.1% to 35.8% .

"It was easy to overlook the slip because in cash terms, most newspapers were enjoying more than 100 percent revenue growth from online, but since that growth was frequently at the expense of print, there was clearly a problem," the report summary says.

Newspapers, it notes, have responded by creating new online platforms with no brand relationship to the print product, and are collaborating with other papers to create verticals in areas such as help-wanted, auto, and real estate.

While cautioning that the reported numbers on online revenue can sometimes be suspect, the report concludes that in the U.S. online revenue, which now accounts for an average 5.5% of a newspaper's total ad revenue is on track to hit 10% by 2008-2009.