I have been generally keeping an eye out on how newspapers are going to work out given the economics of the industry. And today I read a small update which brought home the economics pretty hard. I quote:
Take the New York Times Company. It generated $74.4m in online advertising in the third quarter, 10.2 per cent more than in the same quarter in 2007. But the $6.9m increase in online ad sales was dwarfed by the $73.7m decline in print advertising revenues, which plunged by 18.6 per cent. Even if it managed to halve its $677m quarterly operating expenses by dropping the hard copy, online ad revenues would cover just 22 per cent of its running costs.
Strip out the NYT’s other sites, such as About.com, and assume those third quarter online ad sales were generated only by NYTimes.com. That makes the 20.3m unique readers who used the site worth about $1.22 each per month, a fraction of the value of a print subscriber. To break even as an ad-funded digital-only business, with a quarterly cost base of, say, $338m, NYTimes.com – already the number one newspaper site in the US – would either need four times as many unique users or ad rates four times as high as today’s, or a bit of both. Industry consolidation will help but making the numbers without other revenue streams, such as subscriptions and conferences, will be a Herculean challenge.
Can you see the problem now? I keep on thinking, all this web 2.0 business is fine, but where is the money? Who is going to pay for all this?