2004 Annual Report - Online Economics

Many Web sites have now reached a point where they can claim profitability.

That good financial news, though, must be put into perspective. First, the money being made on the Internet is still a relatively small part of company income. Second, how much of a profit center it is depends to a certain extent on how costs are accounted for, and many news Web sites do not pay for the cost of supplying much of their content.

It will still be years until the Internet becomes a major economic engine that is paying for the journalism it produces rather than piggybacking off its older media parents.

Still, the Internet is journalism's growth area, at a time when other areas are shrinking in audience, which is putting inevitable pressure on economics and quality. The growth rates for revenue and profit are high, and at the close of 2003, the projections for 2004 and beyond were aggressive. Some of this optimism stems from a belief that companies will become savvier at using the data that they collect from users, both through requiring registration and by tracking people's actual use of the site. As Web publishers learn more about their users, they will be able to increase their revenue from advertisers willing to pay more to reach specific demographics.¹

Revenues

It is important to recognize that the Web represents only a small part of the overall revenue of these companies. The numbers, realistically, would be barely worth mentioning for these corporations except for the perceived potential growth of the sector. In a report, "What Newspaper Web Sites Earn," Borrell Associates examined the 2002 online revenues from the 11 largest publicly-traded newspaper companies.² These online revenues on average accounted for only 2 percent of total revenues of the companies. Dow Jones, which charges for online access, had the highest percentage with 3.2 percent.³ Even if the online revenues continue at robust rates of growth, it should be kept in mind that it will be some years before they make up a significant portion of company revenue.⁴

Even a comparison of newspaper groups' online revenues to their newspaper revenues demonstrates online divisions' relatively small contribution. At the New York Times, online revenues were only 4 percent of newspaper revenues in the third quarter of 2003.

Online Revenues for Newspaper Companies, 2002

Design Your Own Chart

Source: Borrell Associates, ‘‘What Newspaper Web Sites Earn,’’ April 2003, p. 8 *Includes revenue from non-Newspaper related sites, such as television Web site revenues and other Web ventures. New York Times Co. includes the Web sites for the New York Times and the Boston Globe. Gannett figure does not include the USA Today Web site.

Keeping this in mind, however, the rate of growth is impressive-and important. Except for Dow Jones, each of the 11 newspaper companies reported a double-digit increase in revenue for their online operations in 2002, according to Borrell Associates. Belo led with a gain of 49 percent. Gannett, Tribune, Knight Ridder, Lee, and Media General all had increases of at least 25 percent, and The Washington Post reported 18 percent growth.⁵

The projections for 2004 are that such growth rates will continue and perhaps increase. The Online Publishers Association said that in a survey of 26 leading media companies, which included many newspapers, 2003 third-quarter advertising revenue was 46 percent higher than in the third quarter of 2002.⁶ Even if 25 percent growth persists, newspaper companies will double their online revenues by 2005 over 2002 levels and triple them by 2007.

There are suggestions that this impressive rate of growth is true at other Web outlets. Richard Deverell, head of BBC Interactive, remarked in 2003 that BBC.com was getting 3 million readers every day and was growing by 50 percent a year, while BBC television was getting 10 million viewers a day and was declining by 5 percent a year.⁷

While the revenue model of the news on the Web is still emerging, the picture is clearly improving.

One factor is classified advertising. McClatchy reported an 80 percent increase in 2003 online classified revenue over 2002.⁸ WashingtonPost.com, on the other hand, has reported over 60 percent growth n revenues excluding classified advertising, and 30 percent overall.⁹ Classified revenue, in other words, is not growing at the same rate as other advertising sectors.

Online Revenue as Percent of Total Company Revenue, 2002

For 11 public newspaper companies

Design Your Own Chart

Source: Borrell Associates, SEC Filings Includes Media General Inc., Lee Enterprises Inc., Belo Corp., McClatchy Co., Washington Post Co., Dow Jones Inc., Knight Ridder Inc., New York Times Co., Tribune Co., and Gannett Inc.