There’s an interesting interview with Jim Moroney, executive vice president of A.H. Belo Corp. and publisher and CEO of The Dallas Morning News, on the economics of print and online. I don’t know enough about what the Morning News has and hasn’t done, so this isn’t a vote in favor or against any of their initiatives. But it’s a good reminder of what the economics of online advertising look like, because he offers some nice insights into how they’re looking at the numbers.
The background to this is that the Morning News instituted a paywall and significantly raised print subscription rates.
The doomsayers cry out, “But your page views will drop!” Our response: How valuable are pages that you’re selling at 70 cents per thousand? I’m not worried about the loss of page views that are sold at remnant rates. There’s very little financial value there. We expected a 40 percent decline in page views, but in the first 12 weeks the average weekly decline was only 19 percent. That’s less than the percent of our page views we were selling at remnant rates. In fact, since the day we launched our subscriber content initiative, our digital ad revenues have increased, not declined.
Now, not everyone can do this, and success at implementing a paywall is by no means guaranteed. But it’s a reminder that traffic isn’t everything – not from an influence point of view, and certainly not from a revenue point of view. And that the mix of revenues – which at many papers hovered between 80% advertising and 20% circulation for decades – are fast changing At Belo, it’s now closer to 60% advertising, 30% subscriptions and the rest commercial printing and the like.
It’s not like Belo likes this mix; but this is the reality of the new world we live in. The dynamics of the online ad world are so far apart from that of the print world that they’re essentially completely different animals – and that it’s hard to imagine how digital ads will ever replace print revenues.
In the first quarter of this year, more than 1 trillion digital ad impressions were served in the United States. That represents a supply/demand problem that won’t reset itself for years to come. There is no way to aggressively raise CPMs in the digital space with so much inventory being created and made available. I’m afraid we’re not trading digital dollars for digital dimes; we’re trading digital dollars for digital pennies.
Here’s the math: At the Morning News, we did approximately 40 million page views per month. If we had three ads on each page, and if we sold every ad on every page every day, and you assume a $10 average CPM, we would generate just over $14 million annually. We invest $35 million in our newsroom. I just don’t think digital dimes will get you there. And certainly digital pennies won’t. Metro newspaper sites just won’t scale to make those dimes and pennies add up anywhere close to the revenue being lost in the print product. We must find different ways to realize the value of our digital audiences than just CPM based advertising. Go ahead and stack the digital ad dimes. Yet at the same time, I’d be looking for sources of revenue other than advertising.
So maybe the newsroom isn’t worth $35 million, or that there shouldn’t be such a sense of entitlement in some newsrooms that people “should” pay for content. But it’s equally as clear that online ad revenue is structurally unable to cough up significant dollars.
Which is another way of saying we really need to get past the debates about paywalls and traffic and focus not just on developing a range of multiple – often small – revenue streams, but also the more fundamental questions about how we create the basic units of news, the persistence of our content, and what it costs to do that.