2005 Annual Report - Online Economics

Even more difficult than untangling revenues is trying to pin down whether a news Web site is profitable.³⁵

One complication involves accounting procedures. Most online news sites are small divisions of larger operations. But companies differ in how much, if any, of their existing newsgathering and overhead expenses they allocate to their online operations. Some allocate to their online divisions only the additional marginal costs of producing their Web sites. Others share some of their overall newsgathering costs with their online operations, but how much they allocate differs from company to company.

A second complication is that organizations often sell ad packages across different media. Thus profitability depends on how much of that ad package is attributed to the online portion of the deal. By changing the proportion, a parent company can alter the revenue and ultimately the profits.

A third complication is that some newspapers include their non-news-site revenues in their online profits.

In time, indeed, it may make less sense to even try to separate online economics as its own category. Instead, newspaper companies will be multi-platform news providers, as will TV networks and others. (Gannett, for one, already treats the revenues and expenses as part of its newspapers.) News, the nature of the product, may be the category to examine, rather than the delivery system. Yet there is no guarantee that that is how the companies will define it.

With those caveats in mind, 2004 saw a number of sites either reporting profits for the first time or continuing to turn a profit. In the Borrell Associates survey of 463 newspaper sites in 2003, some 83% were reporting profits, with an average margin of 60%.³⁶

Local television news Web sites are not as successful. Revenues were low in 2003 and less than 15% of the sites made a profit, according to surveys of news directors.³⁷

Perhaps the biggest single profitability announcement came from MSNBC.com, which turned a profit in the second quarter of 2004 for the first time since the site launched in 1996. It has remained one of the top three news Web sites for the past few years, with around 20 million unique visitors a month. Much of its success with traffic is owed to its ties with the MSNBC cable network, NBC News, and the MSN network. The profit came from annual revenue of $45 million - a drop in the bucket for its parents, Microsoft and General Electric, but a sizable amount for an online company. Ad revenue came from a variety of sources, with 80% of from 60 different advertisers.³⁸