2004 Annual Report - Online Economics

The model that online news sites follow may depend in part on the size of the publication. For now at least, the larger the paper, the more remunerative its online division is. Borrell found that the largest newspapers (those with circulations of more than 200,000) took in nearly four times as much revenue as the smallest dailies after accounting for differences in size.

Indeed, the smallest papers (those with circulations of less than 50,000) average less than $6 in online revenue for each of their print subscribers. Newspapers with circulations of more than 200,000 were able to collect more then $20 in online revenue per print subscriber. Revenues for newspapers between 50,000 and 200,000 fell in the middle. Overall, the sites in the study averaged $14.49 in online revenue per unit of print circulation.

Newspaper Online Revenue Per Subscriber, 2002

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Source: Borrell Associates, ‘‘What Newspaper Web Sites Earn,’’ April 2003, p. 12 Based on 246 newspapers.

Where Local Online Advertising Goes, 2002

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Source: Borrell Associates, ‘‘What Newspaper Web Sites Earn,’’ April 2003, p.5

In the latest year for which data were available, 2002, newspaper Web sites procured a 40 percent share of online local advertising. The next largest slice belonged to online yellow pages, with 24 percent. Yahoo, AOL and MSN got 12 percent. Local television and radio sites got 3 percent.²⁰

Newspaper publishers' greatest concern comes from the 21 percent of local advertising dollars going to the so-called vertical companies online such as eBay, Monster.com, and AutoTrader.com. Borrell Associates labels these new companies as "classified killers" because they eat away at the robust income that newspapers have enjoyed for so long. As they are in print, classifieds are an important revenue stream online. The McClatchy newspaper company, for instance, draws 60 percent of its online revenue from classifieds.²¹ In an already shallow pool of online advertising dollars, newspaper Web sites are having to learn how to compete to a much greater degree than they have had to in print.

There is another problem. If the newspaper Web sites lose substantial portions of online classifieds, they seem likely to lose them out of their newspapers as well. Why would someone who chose Monster.com over the local newspaper for an online classified ad then turn around and make a separate purchase of a newspaper classified?

The problem has a societal as well as business implication. If substantial portions of classified advertising shifts away from paying for journalism, the political and social impact could be enormous. The resources of the most important newsgathering organization in every town in America could shrink. Instead of endeavoring to cover the totality of their communities, newspaper companies, in whatever delivery form, would be forced to be much smaller, targeted newsgatherers, with smaller staffs and more limited news agendas. Newspapers, in that sense, would move more in the direction of local television.