Report: Online profits soar as overall margins sink

N&T Staff Report

Newspapers’ online profits soared in 2007 even as the industry’s margins fell overall, according to a new study from Borrell Associates Inc.

The report said that although the industry’s operating profit is now hovering at about 23 percent, mature online operations are generating 40 percent and higher profits, “suggesting that achieving a critical mass of online ad revenue translates to profit at a much higher rate than print ad revenues.”

Still, online revenues represent only a tiny percentage of a paper’s total ad sales, Borrell said in the study, “Benchmarking Newspaper Online Revenues — International Survey 2007.” The report includes research conducted in 2006 and 2007 for the World Association of Newspapers’ Future of Newspaper Project.

Borrell said few newspapers’ Internet operations generate more than 10 percent of their total revenues, and that outside of the United States and Scandinavia, the amount generated from Web sales is usually closer to 5 percent (see related story, page 17).

The study said 2006 was a time that newspapers adjusted their business strategies to position their online businesses to be more in line with their print operations.

U.S. and Canadian newspapers took these steps as their share of local online market revenues grew from 15.3 percent in 2004 to 37.9 percent in 2006, Borrell said.

Among other study results:

• Sites created by newspapers are locally oriented or built around specific classified verticals like real estate, cars and recruitment.

• In the United States, online revenue now accounts for an average of 5.5 percent of newspaper’s total ad revenue and is on track to hit 10 percent by 2008-2009.

• In Canada, the average is about 3.5 percent for metro dailies, but only half of that for community papers.

• Recruitment remains the dominant online classifieds vertical.

A free copy of the executive summary can be downloaded at www.borrellassociates.com/Reports.aspx, or the full report can be purchased for $995.