2004 Annual Report - Online Economics

Getting a grip on the next part of the economic picture, profitability, is a little harder. Borrell does not collect profit figures, only revenue. Even where there are numbers, moreover, profitability is hard to gauge since Web sites require substantial investments as seed money to design and operate them. So, while a site or online division may be making money on current operations, the startup costs have to be considered when calculating the Web's full impact on the company.

Revenues and Profits for Select Newspaper Online Divisions

2000 to 2002

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Source: SEC Filings New York Times Digital does not include the New York Times Regional Group

The evidence suggests, however, that profits are improving. Some bigger companies, indeed, are now able to argue they have crossed the breakeven point. ABC News announced that its online division turned a profit in its 2003 fiscal year.¹⁰ For newspapers, four large corporations report operating profits for their online divisions to the SEC. The online operations of two of these companies - the Tribune Co. and The New York Times - became profitable for the first time in 2002, after incurring large losses in 2000 and 2001. Two others, Knight Ridder and the smaller Belo, continued to approach profitability in 2002 but still had losses. It may be that The Times and the Tribune Co. have been able to leverage the size of their individual newspaper audiences with advertisers looking to get a good price for as many eyeballs as possible. Chains with smaller newspapers may have to work harder in order to collect ad dollars.

Some have raised the concern that even these profit numbers and, to some extent revenues, may be inflated through complicated accounting procedures. Newspapers often sell print and online classified advertising as a package deal. It is then up to each company to decide how much of each classified dollar belongs to print and how much to online. By shifting around the distribution, online divisions can appear more or less profitable. "There's no hint here of Enron WorldCom-style accounting," Dominic Gates wrote in the Online Journalism Review. "It's not crooked - it's just complicated with lots of room for fiddling with the numbers."¹¹

One thing is clear, however. As the newspaper industry watches shrinking readership, declining circulation and stagnant advertising revenues, the investment in the Web represents, to date, the industry's primary investment in the future.