Online Economics - 2006 Annual Report

Until recently, it would have been a major event for an online news site to report a profit. Over the last two years, that has changed. There is still a fair amount of unneveness, and some sites have a long way to go. But the trajectory is increasingly clear.

Last year we discussed the difficulty of reporting profit figures for online news, including the fact that different companies handle the accounting for their online operations differently. Still, there are indicators that offer an overall picture.

For online newspaper sites, survey research from Borrell Associates Inc. suggests that large spikes in ad revenue have helped push profits upward. According to a survey of 719 daily and weekly newspapers across the country, the average online profit margin was nearly 70% — an increase of nearly 10 percentage points over 2003. Moreover, 90% reported they were making some profit, up seven percentage points from the previous year.

It also appears that there is a direct relationship between a newspaper’s circulation and its online profitability. Generally, with a few exceptions, the sites with the largest audience figures tend to be the most profitable.66

At least one online news division appeared to be collecting more profit than its print counterpart. In the second quarter of 2005, the Dow Jones print publishing division, publisher of the Wall Street Journal, reported an operating income of $7.2 million, a decrease of nearly 60% from the same period in 2004. The electronic publishing division of Dow Jones, however, which includes WSJ.com as well as Market Watch, reported an operating income of $29 million, an increase of 28% from the year before.67

Only two public media companies were still reporting online losses in 2004, according to Borrell: Belo had a loss of $4.7 million on revenues of $31.1 million from its digital operations, while Media General Interactive reported a loss of $6.3 million on revenues of $13.9 million.68

Local television Web sites, meanwhile, are still struggling to earn a profit. More than three quarters (75.8%) of TV stations were unprofitable in 2004, although that was better than 2003 (85.2%).