Sunday, June 24, 2007

What Can Magazines Learn From Newspapers' Digital Transition?

Hegel was right when he said that we learn from history that man can never learn anything from history.

George Bernard Shaw (1856 - 1950)

What Can Magazines Learn From Newspapers' Digital Transition?
Posted by: Scott Karp

So often you hear generalizations about the future of print publishing, e.g. print is dead, newspapers are doomed, online revenue is soaring, print revenue is shrinking. None of these generalizations tell you what's actually going on at the P&L level, which all publishers have to manage in age of rapidly changing media economics. There's nothing like digging into the actually numbers to give you a sense of how the publishing business is transforming, especially in comparing the economics of digital to the economics of print.

I was struck today by the data flowing out of the Newspaper Association of America's Mid-Year Review:

As we reported last week, Media General's May print ad revenues fell 14.9 percent, to $42 million from $48 million, while the interactive division posted a rise in May 2007 revenues of 43.1 percent to $2.8 million from $2 million the previous May. At Tuesday's presentation, COO Reid Ashe told attendees: "For many things, the internet is now our primary medium."

Although not presenting until Wednesday morning, Lee Enterprises, the Davenport, Iowa-based publisher of the St. Louis Post-Dispatch and other newspapers, issued its May figures on Monday: online ad revenue was up 60 percent in May to $5.3 million from $3.3 million year-over-year. In general, advertising revenue declined 1.7 percent to $73 million from $74.6 million, for the same period. Combined print and online classified revenue for the month was pretty much flat, coming in at $29.1 million from $29.2 million in May 2006. Lee's claimed its websites attract more than 11 million visits per month. Lee expects June's declines to be similar to May's and April's.

These numbers are really astonishing when you look at them -- and when you do the math that no one ever does in press releases. Media General's print ad revenue is down $6 million for May year-over-year. But online is only up $800K. That's a net loss of $5.2 million! Online revenue may be up 43.1 percent, which seems like a lot, but it really needs to be 10X that. The caveat, of course, is that the $800K in online is more profitable, but is it really, given how much of newspapers are using print content online?

The Lee numbers are even more striking. First, the $2 million year-over-year increase in online ad revenue is impressive in absolute terms. Even more impressive is that this increase in online ad revenue is nearly compensating for the decline in print ad revenue.

But this is what really gets me -- Lee's online ad revenue is online 7% of it's total ad revenue -- yet Lee reaches 11 million per month online across its newspapers. That made me wonder how many people Lee reaches in print:

As Lee's paid daily circulation held stable at 1.7 million daily and 1.9 million Sunday, total print plus online audiences keep growing.

Think about this -- advertisers paid $67.7 million to reach about 2 million people in print -- but they only paid $5.3 million to reach 11 million people online! Now, granted, it's not as simple as that, since not all 11 million people visit the site every day. But still.

Clearly, newspapers have a BIG pricing problem. And that's where the lesson for magazines comes in. Print publishers, both newspapers and magazines, have long enjoyed monopoly pricing. Even in competitive magazine categories, there were typically only 2 or 3 books competing for ad dollars to reach a particular audience. Online competition has exploded, thanks to cheap publishing tools like blogging software. Newspapers have been the hardest hit by the loss of pricing power, since most newspapers enjoyed a true monopoly, and news has become highly commoditized online. But there are few topics or niches where there aren't new sources of information proliferating online -- in many cases, A LOT of new sources.

But it's not just competition that has created such huge disparities in pricing and media value. For most print publishers, the online pricing problem is, to a large degree, a self-inflicted wound from all of those years of giving online away as "added value" to advertisers paying top dollar for print ad pages. Publishers taught advertisers to devalue online, and now that advertisers are devaluing print, it's hard to convince them that online is worth at least as much as print -- if not more.

So what's the lesson for magazine publishers?

1. Advertiserswill value your online audience not a penny more than how you value it,and likely a lot less -- that means you need to price onlinecommensurate with its value and you need to make it the site LOOKvaluable -- so much of the appeal of print is in the appearance.

2. Keep advertisers focused on media 101 -- a larger audience, assuming it's all the right people, is worth MORE, not less.

3. Reachingpeople in their preferred medium or one with a high degree of utility,e.g. email newsletters, has MORE value for advertisers, even if the adunits don't have the same aesthetic appeal as a glossy print ad.

4. Evenif your online ad revenue is small or non-existent, seize control of itNOW -- don't wait, like newspapers did, until the horse is out of thebarn.

Scott Karp writes for Folio online about digital media and its impact on magazine publishing, and also on Publishing 2.0, a blog about how digital media is transforming the entire media industry.

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