Dept of Small Numbers: The Guardian’s analysis of Murdoch’s paywall traffic

Posted by Peter Kirwan on 8 December 2010 at 11:04
Tags: Media, News Corp, News International

The Guardian’s analysis of behind-the-paywall traffic at The Times and The Sunday Times, reported exclusively by Press Gazette this morning, offers something new: an assessment of how many subscribers are actually visiting the sites.

The official numbers for pure-play digital subscriptions from Wapping, published in early November, told us something about conversions. Likewise the recently-publicised survey stats from Oliver & Ohlbaum, based on a November survey of newspaper readers, which suggested that 14 per cent of Times newspaper readers had reacted to the paywall (imposed on 2 July) by subscribing in some way.

Conversion rates are important. But so is usage, which acts as a slam-dunk proxy for reader loyalty. Loyalty directly influences renewals. And renewals - rather than expensively-acquired new subscribers - are the secret sauce of any subscription business. Unfortunately, the GNM/Hitwise numbers don’t look encouraging in this respect.

In early November, News International revealed that:

100,000 joint digital/print subscribers. . . have activated their digital accounts to the websites and/or iPad app since launch.

Well, yes. But how many of these cross-media subscribers delved beyond the paywall at thetimes.co.uk and thesundaytimes.co.uk during September?

According to the GNM/Hitwise study, the number was 26,000. However you look at it, these sites don’t seem to have been a hit with devoted users of print and/or iPads. A majority of print subscribers seem to have activated their online sub. . . and not returned to the site.

Perhaps this is predictable. But how much interest have pure-play digital subscribers shown in Wapping’s paywalled sites? These are the punters who should be showing the greatest loyalty, accessing paywalled content on a regular basis.

By the end of September, when the Guardian performed its study, The Times’s paywall had been up and running for three whole months. Judging by the numbers released by News International in early November, The Times and The Sunday Times had been selling, on an averaged monthly basis, around 13,000 micropayment deals (“single copy or pay-as-you-go customers”) plus a similar number of pure-play monthly digital subscriptions across all platforms (web, iPad and Kindle).

Now let’s take these average monthly sales figures and then slice them to fit within the timeframe used by GNM’s researchers. The numbers suggest that The Times and The Sunday Times sold 26,000 pure-play subs (monthly and £1-per-day passes plus Kindles and iPad subs) in July, and the same again in August and then September.

Of course, it would have been ideal for Wapping if all of these subscribers visited the sites at least once during September. On this basis, the maximum number for pure-play behind-the-paywall visitors in September would be 79,000.

This target is toppy: it comes with a few provisos. Some of the £1-a-day punters, for example, will have purchased access twice, or more, during September. We should also subtract a small number of eccentric Kindle-heads and an unknown number of standalone iPad subscribers. (News International didn’t start bundling web access with iPad apps until the second week of October.)

So: at this point, what would you expect thetimes.co.uk and thesundaytimes.co.uk to be doing in terms of pure play (no newspaper subscription) visitors during September? Clearly, 79,000 would be way too much. So how about 60,000 paying punters a month? Or 50,000?

Er, no. According to GNM/Hitwise, during September, thetimes.co.uk and theesundaytimes.co.uk attracted 28,000 punters who had paid for pure-play access.

The numbers suggest the existence of a problem. So far as I can see, there are at least four possible explanations for it:

1) Pure-play customers are churning away from the paywall in large numbers, buying £1/month “introductory” subs and then cancelling their direct debits soon afterward.

2) Subscribers are subscribing, and churn is running at acceptable levels, but users have little reason to return to the paywalled sites. Perhaps their isolation from the rest of the web is causing even committed users to neglect them.  Whisper it who dares: Jeff Jarvis may be right about the power of the link economy. In the long-term, these apparently weak visitor numbers suggest that disappointing renewal rates lie in wait.

3) Perhaps The Times’s iPad app has taken off like a rocket, providing compensatory ballast for poor website numbers in that obfuscatory 2 November press release from Wapping. If this explains September’s poor numbers on the web site, it may also explain why Rupert Murdoch has committed so much resource to The Daily, the iPad-only US news service that News Corp  is expected to launch in Q1 of next year.

4) The data from Hitwise/Experian is incorrect. It’s beyond my pay grade to comment on this possibility. But traffic numbers are always vulnerable to challenge. . .

By contrast with these negative findings from GNM, it’s worth noting the optimism of Jonathan Miller, the much-lauded ex-boss of AOL who now runs News Corp’s digital operations. At a conference last week, Miller suggested that The Times and The Sunday Times are on an “immediate path” to compensate “within months” for the decline in ad sales that followed the imposition of paywalls.

“There’s a transition there that’s tough, which unfortunately means not every company can do it,” Miller said. “We’ll make it, but in all honesty because we can afford to.”

You’d need to be confident to bet against Mr Miller. On the other hand, he may be merely buying time before News International adopts the freemium model of the Wall Street Journal, or the metered model of the Financial Times. Doing so would end Wapping’s self-imposed isolation from the link economy and offer The Times and The Sunday Times a low-cost marketing platform that could better engage potential subscribers.

The numbers from GNM suggest that this might be a sensible route forward for Wapping.

Arrogance + hypocrisy = Newsquest

Posted by Peter Kirwan on 11 November 2010 at 22:06
Tags: Media

It was the condescension that jumped off the page. When Newsquest, the second-largest local newspaper publisher in Britain, wrote to its employees in early August announcing the closure of its final salary pension scheme, the justifications were vague and the FAQs superficial.

The cost of running Newsquest’s pension scheme, employees were told, had become “extremely high” and was no longer “sustainable”.

Perhaps it was a sense of irony that led Paul Davidson, the chief executive of Newsquest, to refer to “press articles over the past few years” that have chronicled the demise of similar schemes. Or was it simply arrogance?

Davidson, who never answers calls from journalists, went on to claim (“with deep regret”) that Newsquest, a subsidiary of Gannett that employs 5,000 staff in the UK, was now “in a similar position”.

His letter was infected by the glib Orwellian language of retail marketing. Employees leaving the company’s final salary pension scheme were encouraged to anticipate the delights of Smart Pay Adjustment and Default Lifestyle Adjustment Funds.

Pensions are complicated things. Yet in a document stretching to 13 pages, like the one sent to Newsquest employees on 13th August, you might have expected a concerted effort to explain why change was inevitable.

Newsquest failed to do this. Neither the document nor the accompanying letters contained very much hard financial detail. In particular, they contained zero explanation of how Newsquest’s pension fund had generated a deficit of £123m.

Six months later, Newsquest has now confirmed that it will close its pension fund. The public silence from the company’s corporate HQ continues. The National Union of Journalists has conducted negotiations behind the scenes. Newsquest’s approach to these appears to have been desultory. The union has been denied access to the draft valuation of the pension fund, which details the £123m deficit. That valuation will be published next year, by which time Newsquest’s final salary pension scheme will be long gone.

What seems to have defeated the company is the deterioration in the deficit of roughly £80m that has occurred since 2008. Two years ago, the company and trustees happily agreed a plan to eliminate a deficit that amounted to £42m at the time.

How significant is £80m for Gannett, the US newspaper company that owns Newsquest? It might help if we place the number in context. In 2007, according to annual accounts filed at Companies House, Gannett UK Ltd, the holding company that owns Newsquest, generated operating profits of £185m. During the following year, even as recession started to bite, operating profits amounted to £129m. During these pre-bust years, the company’s operating margins didn’t fall below 25%, and frequently ran as high as 30%.

If Newsquest remains such a highly-profitable company, why couldn’t some of its profits be diverted to plugging the hole in its pension fund? In the US, companies often attempt to “cure” pension deficits over a seven-year period. If Newsquest had taken on the burden of doing this in the UK, it would have cost the company a maximum of £11.5m a year.

You might reply that it’s simplistic to ask highly profitable companies like Newsquest to protect their employees’ pension rights. Perhaps, therefore, we need to ask how the funds available to the trustees have been managed in recent years.

In late 2007, on the eve of recession, The Newsquest Pension Fund had over £400m invested in shares, bonds, property and cash accounts. Between 2008 and 2010, a fund of this size could easily have lost £80m of its value. It certainly didn’t help that the trustees went into recession with 15% of their assets invested in high-risk hedge funds and 20% in property.

Yet much of the value lost during The Great Crash will one day return. Almost certainly, it will do so before 50-year-old employees retire. Share prices will not stay at their current, relatively depressed levels forever.

On this basis, how “unsustainable” is Newsquest’s pension fund in the long term? Given rising asset valuations and a corporate willingness to contribute, could its deficit have become sustainable again at some point in the future?

This, too, is a very obvious question that which remains unanswered, like several others about Newsquest’s pension scheme. Dominic Ponsford lined up these other outstanding queries back in August. These questions, too, remain unanswered:

• Why is the employer pension contribution offered by Newsquest’s new scheme going to be less than that offered by Trinity Mirror and Johnston Press, which have both already closed their final salary pension funds?

• Is Newsquest’s parent company Gannett taking similar action to curb the retirement payouts of employees on its US titles? Is Gannett similarly secretive about its US pension arrangements? If not, why is its UK subsidiary so frightened of justifying its position?

• Will Paul Davidson’s own company pension contributions be affected by the move?

So far, Newsquest has utterly failed to make a convincing case for closing its pension fund. At his offices in suburban Surrey, Paul Davidson continues to ignore phone calls from journalists, like ourselves, who remain curious about his proposals.

All that remains visible is unalloyed corporate arrogance. The scale of that arrogance became breathtakingly clear in the final par of Paul Davidson’s letter to staff this summer, which contained the time-honoured suggestion that “we cannot ignore the business environment”.

Oddly, this seems to be precisely what Gannett has done when it comes to Paul Davidson’s own salary, which increased by 21.5% in real terms to £609,385 last year. More pointedly, the pension contributions made by the company on Davidson’s behalf rose from £38,536 to £94,986.

Glib words about the business environment are merely an assertion designed to induce submission. Allied to hypocrisy, they represent an insult to hard-working employees who have lived with pay freezes for the past three years.

The NUJ’s position — voiced today by local organizer Chris Morley — is that the company could have found a way “to retain the best elements of a defined benefit pension scheme”. Newsquest, he adds, is “a profitable company that can afford to do much better”.

During negotiations in recent months, which remain cloaked in legal secrecy, the NUJ says it has asked “detailed and challenging questions” about the closure of Newsquest’s pension plan. The responses lead Morley to suggest that the company is simply “hell-bent on swinging the axe”.

That much has been clear all along. Indeed, the root problem in all of this is larger than Newsquest’s failure to properly explain its decision. The real scandal is the fraudulent state of British pensions law, which allows highly profitable companies like Newsquest to make damaging decisions about the long-term welfare of poorly-paid employees in the knowledge that they will never be held to account.

Return of the prodigal: Why advertising will make or break Wapping’s paywall

Posted by Peter Kirwan on 3 November 2010 at 12:43
Tags: Media, News International

There are reasons why business ventures that make an initial fist of it get three years to prove their long-term viability. In the first year, you make mistakes. In the second year, you correct them. In the third year, you get realistic year-on-year comparatives. These tell you whether the business is a keeper or not.

This is a gross simplication, of course. But it’s worth remembering this kind of timeline given the first paywall metrics from The Times. The numbers emerged yesterday, courtesy of a statement (thanks to Paid Content for publishing it; Wapping didn’t) and an interview with James Harding, the editor of The Times, on Radio 4’s Today programme.

The numbers, compiled after 4 months of charging, go like this:

• 100,000 print subscribers have activated “free” (bundled) digital subscriptions.
  From News International’s statement: “In addition to the digital-only subscribers, there are 100,000 joint digital/print subscribers who have activated their digital accounts to the websites and/or iPad app since launch.” (NB: This equates to around 70% of print subscribers.)

• 105,000 “digital products” have been sold.
  The statement again: “Around half of these [ie half of 105,000] are monthly subscribers. These include subscribers to the digital sites as well as subscribers to The Times iPad app and Kindle edition. Many of the rest are either single copy or pay-as-you-go customers.

One intriguing question here is how many of the c.50K pure-play digital subscribers are iPad/Kindle users. News doesn’t say, and the tittle-tattle is variable. Roy Greenslade says “close to” 45,000 subscribe via iPad (although it’s not clear whether this includes freebie trials). At the Indy, Ian Burrell says “somewhere around” 30,000. Beehive City hazards a guess at 20,000.

Another question: among those users who have signed up for 105,000 “digital products”, how many casual day-pass users exist? Again, the tittle-tattle is variable. The FT suggests 35,000 day passes have been sold. The Guardian’s Dan Sabbagh says the number of day pass users (not the same thing) is “roughly… 5,000-10,000”.

A few souls have been brave enough to try to make sense of these numbers from a revenue perspective. At Beehive City, Tim Glanfield projects annualised revenues for Year1 of £4.3m plus around £300,000 annualized from short-term day passes:

Well if for example the Times iPad app at a generous estimate has 20,000 paying subscribers it would be reaping a monthly return of £200,000. If we assumed (again generously) that the there were 20,000 further monthly web subscribers paying £8 a month (£2 a week) they would bringing in another £160,000 a month … so in total from ‘monthly subscribers’ the digital products would be making £360,000 a month.

At the Guardian, Dan Sabbagh adds in some leaked info that’s not part of the News International statement, and halves the guess of £12m in Year 1 revenues he offered up just 15 hours earlier. Here, then, is Sabbagh’s latest effort at triangulation:

iPad + “small number of” Kindle subscribers: 10,000-15,000, say 12,500 paying £120/year. After Apple’s 30% commission, this may = £1,050,000

People paying online #1 (Monthly digital-only subscribers): Sabbagh assumes 37,500 of these, paying £8.66 a month = £3.9m.

People paying online #2 (“Slackers”: day payments): “Let’s assume that there are, in any one month, 5,000 slackers who pay £1 and sign off. Annualise this and you get a slacker base worth only £60,000 a year.”

Add it all up, and Sabbagh projects annualised Year 1 paywall revenue of £5.5m. By this morning, this figure had become the conventional wisdom.

Accordingly, a couple of questions now loom. Assuming industry-standard churn rates (Sky loses 11% of customers each year) can The Times and The Sunday Times continue to add £5m-worth of revenue to existing renewals for the next couple of years? And if the sites can do this, what will be the cost of acquiring those subscribers? (Notably, Adam Tinworth is very sceptical on both counts.)

The second question has been almost entirely absent from the discussion of Wapping’s numbers. It’s this: how effectively can News sell advertising against these subscribers? Greg Hadfield might be a former news editor of the Sunday Times, but he is surely correct to point out that News International now holds “an enviable amount of data” on 200K digital readers:

“For the first time the Times knows who its readers are – if those digital customers stick with the Times for 30 years, imagine how valuable they are over the lifetime of their relationship with the newspaper.”

Of course, these subscribers are only valuable in this sense if you can sell lots of high-priced advertising against them.

So if £12m-£15m in subscription revenues are a possibility during Year 3, the decisive factor in determining the future of Wapping’s paywalls might not be subscriptions at all.

It may turn out to be how successfully News International can emulate FT.com by selling at CPMs that blow free-to-air news sites out of the water.

You can run from the need to sell online display advertising, as several News International executives, including Les Hinton, have done. But Wapping’s paywall numbers suggest that none of us can ultimately hide from the need to fix what’s wrong with it.

The rise of the content farms

Posted by Peter Kirwan on 7 September 2010 at 11:42
Tags: Media

Is this the year of the content farm?

Last month, Demand Media, which already has a UK operation, published its IPO prospectus. This autumn, AOL plans a UK launch for Seed.com, a platform for freelance contributions that looks a lot like Demand’s. Homegrown entrepreneurs have taken the hint, too: last week, a marketplace for celebrity coverage called Interview Hub opened for business.

Content farms are an attempt to increase the efficiency with which copy is commissioned, produced and published. Among freelance journalists, the instinctive response is often negative.

No wonder. Would you fancy competing with thousands of new (and far less experienced) rivals for work that pays far less than it used to?

Probably not. At Folio, the US publishers’ site, a journalist called Tony Silber says what many are thinking. Businesses like Demand Media “demean and abuse” journalists, he says. On this basis, Silber hopes that Demand Media will “go to hell”.

Publishers and editors may end up seeing things differently. Viewed from a long-term perspective, content farms are merely the latest in a long line of efforts to make online content pay its way.

In the late 1990s, technology companies like AOL and Microsoft thought that the best way of diverting ad revenues away from Big Media was to employ former national newspaper journalists at vast expense. Then came the tyranny (or discipline) of search engine optimization, the effort to make all of that expensively-acquired content visible online. The more visible content became, the better it could be monetized (or so went the theory).

While traditional news organisations tried to raise generate sufficient ad revenue to cover the cost of copy generated in traditional ways, others sought to reduce the cost of content to match the ad revenues that were available online.

On this basis, we spent a few years in the middle of the last decade wondering whether anyone could successfully harvest what Clay Shirky calls the cognitive surplus generated by educated, wired, literate citizens who, for the most part, don’t need to generate a living wage from their writing. Content farms have much in common with those early, crude, efforts to commercialize blogging.

Demand Media, Helium and the rest represent an amalgam of much that has gone before. They focus their efforts on efficient copy generation as well as search optmization. The way in which Demand generates story ideas was first outlined by Wired nearly a year ago:

[Demand Media] analyzes three chunks of information. First, to find out what terms users are searching for, it parses bulk data purchased from search engines, ISPs, and Internet marketing firms (as well as Demand’s own traffic logs).

Then the algorithm crunches keyword rates to calculate how much advertisers will pay to appear on pages that include those terms.

Third, the formula checks to see how many Web pages already include those terms. It doesn’t make sense to commission an article that will be buried on the fifth page of Google results.

Finally, the algorithm, like a drunken prophet, starts spitting out phrase after phrase: “butterfly cake,” “shin splints,” “Harley-Davidson belt buckles.”

. . . At the end of the process, the company has a topic and a dollar amount — the term’s “lifetime value,” or LTV — that Demand expects to generate from any resulting content.

Content farms reduce the cost of content by using technology to assemble extremely large communities of contributors. The larger the number of suppliers of any given commodity, the further its price falls.

Demand Media says it has 10,000 contributors — only a minority, you suspect, are professional journalists — who generate up to 6,000 pieces of video- and text-based content every day. The US commentator Eric Sherman calculates that Demand Media pays its contributors an average of $7-$10 for each text-based commission (and around $100 for a piece of video). The company generates an average of $54 in advertising revenues from each of its commissions.

This is deflation, red in tooth and claw. How widespread can we expect this deflationary impetus to become? Does Demand Media represent the future of freelance journalism?

It’s credible to imagine the kind of story generation techniques used by Demand — if applied to real-time sources like Twitter — becoming an important prop for news editors.

It’s much more difficult to envisage Demand’s methods applied to harvesting news coverage from a vast outsourced army of cheap freelancers. (Notably, Demand Media stays away from news: it is much more interested in long-life coverage that slowly accumulates clicks and ad revenue.)

That said, you can see parts of Big Media learning from the content farms. One example: Take A Break, the 855,000-circulation women’s magazine published by Bauer, which currently promises its readers that it will pay “big cash” (up to £1,000) for their stories of “love, betrayal, loss, sin and life”.

What if Take A Break set up a content farm? What if it made the readers who supply those stories about “love, betrayal, loss, sin and life” feel less like sources and more like authors? It’s possible that the magazine’s editors could spend less money and end up harvesting more, and better, stories (even if some, or many, of them are written by fantasists).

In the US, AOL is already harvesting real-life disaster stories in this way. Seed.com, the content farm operated by the company, recently promised to pay $30 to anyone who had had experienced, and was willing to write about, a relationship as “sickening” as the one between Mel Gibson and 40-year-old Russian singer Oksana Grigorieva.

Demand Media specializes in what its IPO prospectus describes as “evergreen, informative, actionable content for intent-driven audiences”. Obsessed by a news agenda that constantly changes, the national press tends to perform poorly when it comes to content like this. Go look on a national newspaper site for advice on growing clematis or which music tracks to download: invariably, the the user experience sucks to high heaven.

Yet sites like eHow, published by Demand Media, suggest that there’s a viable business to be developed out of content like this. It’s a low CPM business that stretches across many years’ worth of clickthroughs and could well be supplemented by e-commerce revenues.

Like Demand Media, why shouldn’t newspaper publishers reduce their upfront costs by encouraging readers to write their own restaurant reviews or CD reviews? Or their own accounts of how to grow clematis?

When Alan Rusbridger calls for the “mutualization” of content at The Guardian, surely he’s thinking — in part — about content like this?

The technology platforms devised by AOL and Demand Media to handle idea generation, commissioning and payment aren’t desperately complex. On this basis, expanding beyond the traditional bridgeheads inhabited by specialist gardening, food and music correspondents should be relatively easy. And if Demand Media has charted out the bottom of the market, surely there’s plenty of headroom above its market position for intelligent, well-written and cheaply-produced non-news content that advises and informs readers.

Yes, there’s much to dislike about the way in which companies like Demand Media think about journalism. It’s also true that much of the copy on sites like eHow and Helium is dross.

Yet most of us instinctively know that Tim Armstrong, the former Google executive who now runs AOL, is correct to describe content as “the one [remaining] underinvested place on the internet from a technology and structured data perspective”.

The rise of the content farms might feel threatening. But it isn’t all bad. Big Media can learn a few useful lessons from upstarts like Demand Media.

Retailers & national newspapers: Too big to fail?

Posted by Peter Kirwan on 11 August 2010 at 12:43
Tags: Associated Newspapers, Daily Mail & General Trust, Media, News International, Trinity Mirror

Is the advertising recovery we’re witnessing as unbalanced as anything that occurred in the City of London during the run-up to 2008?

That’s what I’m starting to wonder. Take DMGT’s Q2 numbers, which disclose that retailers once again outperformed the broad advertising market, increasing their expenditure Associated Newspapers by 19% YOY. Overall, ad revenues at Associated climbed by 15% during Q2.

At Associated, retail is almost certainly the largest vertical sector in terms of ad revenues — bigger than cars, telecoms and IT or financial services. Anecdotal evidence suggests that retailers have become similarly important at Trinity Mirror’s nationals and The Sun.

The slide at the top of this post, taken from a recent presentation by Guy Zitter, the MD of Mail Newspapers, shows that retailers bought roughly £80m-worth of display advertising from The Mail and Mail On Sunday last year. This year, the retailers’ contribution could rise to £100m. This represents a big proportion — perhaps one-third — of the display ad revenue generated by Zitter’s newspapers.

Drill down a little deeper, and you find that almost half of Mail Newspapers’ retail advertising — nearly £40m-worth of it last year — came from supermarkets. Remarkably, the supermarket have more than trebled their expenditure at DMGT during the past five years.

A few obvious questions, then. What is propelling this huge expansion in retail advertising? Food price inflation? The simple fact of intense commercial rivalry? Or is press advertising itself a bargain that retailers crave to consume? (Perhaps it’s not the latter: Zitter’s presentation also proudly points out that the Mail and Mail On Sunday have been increasing revenue per page at a rapidly increasing rate — well beyond the rate of inflation — for at least the past decade.)

Moreover, the supermarkets have behaved like no other sector during the recession. Unlike everyone else, they continued to spend more and more on press advertising. (Other retailers, by contrast, slackened off a bit, but certainly didn’t hit the breaks in panic mode.) Among the nationals, the supermarkets’ behaviour put a floor under the worst effects of recession, blunting its impact.

In the end, the really important question for publishers is how much longer the big retail chains will be able to increase their expenditure at this rate.

No-one knows. And therein lies the problem. If the supermarkets’ priorities change in the context of a double dip recession, or for any other reason, things could very rapidly start to look ugly for the national press.

Look further ahead, and a bigger challenge looms. Most retail advertising is tactical, price-based, stuff designed to pull shoppers through the doors. When it comes to this kind of advertising, the web hasn’t dealt a death blow to newspapers. Quite the opposite, in fact.

But mobile advertising could be a very different proposition. Geolocation-based offers that appear on shoppers’ handsets as they wander down the High Street, or in advance of a planned shopping trip, won’t spell the end of newsprint. But they will hit newspapers where it hurts.

The Evening Standard heads toward profit: What does this suggest to loss-making competitors?

Posted by Peter Kirwan on 14 June 2010 at 12:07
Tags: Media

Interesting to watch Geordie Greig at Friday’s Value Of Journalism conference, organised by Polis and the BBC College of Journalism. (There’s streaming video of his talk here: you’ll need to poke around a bit to find it, though).

Greig seemed tired but spoke well. He was particularly open about the Evening Standard’s economics since the paper was acquired by Alexander Lebedev in early 2009.

Here are my notes, supplemented with some ABC data on the Standard’s current circulation:

The Evening Standard: Pre-acquisition & paid-for

– Circulation (cover price) revenue, annually: £12m

– 140,000 paid-for circulation, falling by 10%-20% per annum

– Total circulation of 300,000 including bulks

– 8,000 distribution outlets

– Distribution costs: 30p per copy per reader (out of 50p cover price)

The Evening Standard: Post-acquisition & free

– Circulation (cover price) revenue, annually: £0m

– 609,000 free circulation

– NRS readership (six months to March 2010): 1.35m

– 300 distribution outlets

– Distribution costs: 4p per copy

Under DMGT, the paid-for Standard reputedly lost more than £10m a year. For Grieg and Lebedev, taking the Standard free came with risks. How much more would advertisers pay in absolute terms to reach a lot more readers? Would this be enough to compensate for lost circulation revenues and erase those losses?

Advertisers have responded well. Greig suggests that yields (per column cm) have risen by 60% since the Standard went free. Last week, the paper hit the £1m-a-week revenue barrier at which it starts to become a break-even proposition.

The maths are interesting for anyone concerned about the relative value of free and paid-for readers.

The old Standard: Ad revenues (assumption) of £30m

Old circulation (ABC – May 2009): 185,000 (paid for)/115,000 (bulks)

Old readership (NRS April-September 2009): 556,000

Ad revenue per issue (/258) = £116,000

Ad revenue per paid-for circulated copy = 63p

Ad revenue per circulated copy (paid-for & free) = 38p

Ad revenue per reader of each copy = 20p

The new Standard: Ad revenues of £30m + 60% = £48m

New circulation: (ABC – April 2010): 609,000

New readership (NRS October 2009-March 2010): 1.35m

Ad revenue per issue (/ by 258) = £186,000

Ad revenue per circulated copy = 31p

Ad revenue per reader of each copy = 14p

The old saw is that advertisers don’t value “free” readers anything like as highly as readers who pay for their news.

It’s true they don’t. But how big is the discount? The old Standard probably wrung 63p from advertisers for the privilege of reaching one paying reader on one evening of the week. The new, free, Standard, probably manages 31p per circulated free copy.

Yet when the Standard went free, it quadrupled its circulation. It also cut huge amounts of cost out of the system. The old Standard cost 30p a copy to distribute, while the new Standard costs 4p a copy.

The Lebedev Standard isn’t out of the woods yet. Break even remains a novelty. The “sunlit uplands of profit” are still “a long climb” away, added Greig. Cost management is still “very, very tight”.

For all of the disclaimers, I suspect that the free Standard is on its way to becoming a success. But this remains a curiously brittle kind of success. Going free cannot be reversed. It’s a bit like shooting the final round in your clip at pursuing villains. From then on, you’re at the mercy of events.

What happens when one of the villains fires their last shot, and begins to compete on the level? The experience of freesheet wars in London suggests that the ensuing losses can be large. Over the cycle, risk is exaggerated by steep increases and declines in the value of advertising.

The Standard’s success relies on the assumption that no-one is sufficiently crazy (or courageous) to follow its example. The massive accumulated losses of London Lite and The London Paper should have warned publishers off for a generation. Yet if the Evening Standard starts to make profits consistently, that assumption could be tested.

Free isn’t a magic formula. It’s just another price point. Beneath it, the fundamental puzzle of overcapacity among the national press remains as real as ever.

Reasons For Saving Radio 6, No.158: Shaun Keaveny on Adrian Chiles & GMTV

Posted by Peter Kirwan on 11 June 2010 at 13:38
Tags: ITV, Media

The reasons for saving Radio 6 keep piling up.

This morning, I found myself listening to the station’s presenter Shaun Keaveny playing Velvet Underground and The Gang Of Four. . . before the 9am watershed.

As if that wasn’t good enough, Keaveny does media analysis, too.

This morning, the laconic Northerner picked apart ITV’s announcement that it would be replacing GMTV with a new show fronted by Adrian Chiles and a “glamorous female co-presenter”. (You can listen to this yourself, on iPlayer, here: the segment in question begins after 1hr 25 mins. . .)

“Do they have to be glamorous?” asked Keaveny. “Are they going to looking at her journalistic CV or is it just onscreen chemistry they’ll be looking at? Which translates to: can we disseminate rumours that they’re sleeping together?”

Next, Keaveny pinpoints ITV’s odd suggestion that the new show will contain more “male-friendly features”. Keaveny suggests that “Arm-Wrestling For Pints” might be among them.

New studios are being built for the £1.5m launch, he points out. At this point, surrealism takes over entirely (so it’s best to simply quote verbatim):

“It’s going to be presented by Adrian Chiles, who they’ve spent do much money on, they’re making the most of it.

“It’s going to be presented from the White Cliffs of Dover, which will be sculpted Rushmore-style into the shape of Adrian Chiles’s face. Apparently.

“And the studio will be situated in his mouth, which I can’t wait to see. It’s going to be spectacular.”

Where to start with Keaveny’s critique? It’s a sharply-turned satire on celebrity egotism, tabloid collusion, and broadcast sexism. Want to criticise the BBC for paying ridiculous amounts to Jonathan Ross? Ah, but perhaps we should also be looking at how much ITV pays Adrian Chiles. . .

No doubt ITV’s new morning show will be great.  Me? I reckon I’ll be sticking with Shaun Keaveny on BBC Radio 6. . .

Guardian Media Group: How City fund managers and cost-cutting saved Mr Marx’s cash cushion

Posted by Peter Kirwan on 9 June 2010 at 14:26
Tags: Guardian Media Group, Media

Tomorrow, when Guardian Media Group publishes its annual accounts for the year to March 2010, those who regard The Guardian as a perverse charity that distorts competition will argue that not much has changed.

They might even point to an increased pre-tax loss at GMG — courtesy of paper-based write-offs — as evidence of deterioration.

The truth, of course, is that things are slowly improving (at GMG and everywhere else).

At first glance, this might seem hard to credit. After all, we already know that this year’s operating losses at Guardian News & Media (home to The Guardian, The Observer and guardian.co.uk) are going to be similar to last year’s £33.7m.

Inside King’s Place, they’re describing this as “heroic” given a 13% YOY decline in revenues.

You’d have to be a loyalist to swallow that. GMG was late waking up to the impact of recession. In the words of one executive, its national newspapers “veered off course” in terms of sustainable losses during the second half of the Blair-Brown boom. (Last year’s operating loss wasn’t an exception: in 07-08, GNM lost £25m at the operating level.)

Internally, GMG executives talk about how these losses reflect “necessary” investments in digital publishing. No doubt that’s partly true. But by this time last year, it seemed legitimate to ask whether the company might run out of ready cash. If the recession had gone on long enough, and if GNM had taken no action, it could have panned out that way.

Tomorrow, however, GMG will reveal a balance sheet containing £261m of cash (including GMG’s investment fund). That’s down only marginally on last year’s £268m. At a company where cash lubricates cross-subsidy, this really matters.

This year, like last year, GMG raided its savings to pay for those chunky losses at GNM. Yet GMG’s investment fund delivered a stellar return of 15% or so during the 12 months to March. The losses and gains more or less cancelled each other out, leaving GMG’s cash holdings much the same as they were last year.

Guardian journalists might feel sickly raising a glass to the fund managers who invested £200m on GMG’s behalf. Yet without the help of Carolyn McCall’s friends in the City, things would have been a whole lot worse.

Of course, GMG hasn’t given itself over entirely to rentier-style capitalism –- not yet, anyway. GNM alone has seen £26m-worth of cost-cutting during the past year.

Some of the benefits of cost-cutting will only emerge in next year’s accounts. Revenues have started growing again. Both of these factors should narrow next year’s losses at GNM. The road may be starting to rise in front of Alan Rusbridger.

More broadly, GMG is under less strain. Next year, it won’t need to bear the losses generated by local newspapers (£6.7m in 2008-2009, and almost certainly more in the 2009-2010 accounts that will be released tomorrow). It also looks as if GMG Radio generated a small profit in 2009-2010, compared with last year’s operating loss of £6.6m.

The group’s cash cows are also looking better than they did this time last year. Internally, for example, there’s optimism about the prospects for selling GMG’s 50.1% stake in Trade Media Group in two years’ time.

In 2007, the last time Trader Media Group was valued in a transaction, it was worth some £1.3bn. At GMG, they’re hoping that the business will be worth more in 2012 than it was in 2007.

EMAP has been stabilized, too. On debt, the banks have been placated. This, it seems, has been achieved without diluting GMG’s holding in the business. Here, the mood music suggests a sale or flotation by 2015. Before then, EMAP could grow by acquisition, although a further cash injection could be required if the company wants to play a major role in consolidating B2B publishing markets.

There’s still plenty of red ink sloshing around. Yet Mr Marx’s cash cushion feels plumper than it did a year ago. Assuming that we don’t descend into a 1980s-style perma-slump, GMG appears to have passed the point of maximum danger.

This, in turn, provokes a question. Who will GMG appoint to succeed Carolyn McCall as chief executive?

The big tasks facing the new boss include steering through the sale of Trade Media Group and bulking up EMAP.

On this basis, I suspect that GMG and The Scott Trust don’t need a web entrepreneur, a bureaucrat or a technocrat.

What they really need is a financial brain. After a year in which City fund managers played such a big role in calming frayed nerves at King’s Place, that would be entirely appropriate.

Mail blasts BT for “eavesdropping” on Facebook users, but fails to mention its own Big Brotherish efforts

Posted by Peter Kirwan on 7 June 2010 at 14:43
Tags: Associated Newspapers, Daily Mail & General Trust, Media

See update to this story, added below, after conversation with John Bromley, managing director of Mail Online, this afternoon. . .

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The Daily Mail let fly with one of its periodic complaints about Big Brotherism on the world wide web this morning.

Jason Lewis, the paper’s security editor, accused BT of eavesdropping on the comments of disgruntled customers who use Facebook.

A source had described BT as “a bunch of unaccountable, business shafting, useless b*******” on the social networking site.

Within hours, the source was contacted by a BT representative who asked: “Is there anything I can do to help?”

The point, of course, is that BT, like many other companies, has taken to scanning social media platforms for negative comments. To do so, it uses software called Debatescape. After harvesting negative comments from Twitter and Facebook, BT then tries to do something about them. It gets in touch with disgruntled customers and attempts to sort out their problems.

In the face of this well-established trend, we’re bound to ask what troubles the Mail so deeply. In a bid to let us know, the paper quotes Simon Davies, director of Privacy International:

This is nothing short of outright spying. . . It may not be illegal but it is morally wrong.  And it is unlikely to stop there. If the regulators decide there is nothing wrong then political parties are sure to use it, along with lobbyists and firms trying to sell us things.

Firms trying to sell us things? Heaven forbid. Among their number, of course, we might count Associated Newspapers, publisher of the Daily Mail.

According to Andrew Bruce Smith, a PR professional who spends much of his time working with social media, Associated Newspapers — like many other national news sites — uses an application called Sophos3 to track and analyse the behaviour of users. Sophos3 describes its software as follows:

“Sophus3 has the capability to identify visitors who come from online campaigns, how they behave on your website and whether they turn into a lead or buy after that. With our analysis tools we can determine the effect of online advertising on consumer interest.”

Analytics software like Sophos3 is a major component of news sites’ efforts to prove the usefulness of online display advertising. It follows users beyond the last click they make on Mail Online, in a bid to prove that users purchase stuff as a direct result of being exposed to specific online advertising campaigns.

Without technology like this, online display advertising will remain a ghetto. And if that happens, journalism itself will become ghettoised as print revenues shrivel up and die.

Eavesdropping? Spying? Big Brother?

Some of you might find the surreptitious behavioural tracking of Mail Online users far more Big Brotherish than BT’s efforts to improve customer services by acknowledging conversations that are, in any event, being held in public on the world wide web.

But don’t worry: the chances of reading a scare story about behavioural targeting in The Daily Mail amount to approximately zero.

Hammering BT for its use of social media is so much easier. Best of all, it obviates the need to answer all kinds of awkward questions about your own organisation’s propensity for spying on web users. . .

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UPDATE: 07/06/2010:

James Bromley, managing director of Mail Online, tweets that this blog post is “factually incorrect”.

We talk, and he tells me that Sophus isn’t actually “contracted individually” by Mail Online. Instead, it works for the Newspaper Marketing Agency, gathering data on visitor numbers across national newspaper sites.

The information gathered by Sophus isn’t behavioural either, says Bromley. Sophus might well be able to track readers “beyond the last click”, but it doesn’t do so for either the Mail Online or for the NMA.

So where does this leave us? Bromley won’t specify exactly how Mail Online tracks its users (although we know the site uses Omniture and Google Analytics). “We’re only doing what any news web site is doing,” he says. We discuss behavioural targeting and the last click problem, but he’s still reluctant to give anything away.

He admits that some advertisers who buy space on Mail Online may be using more sophisticated techniques. This in itself suggests that users of Mail Online are being tracked in ways that might surprise them.

“It’s not really the publishers that hold they key to the information that is captured,” says Bromley.

Arguably, it should be. As Addiply (Rick Waghorn) asked Bromley on Twitter this afternoon: “If the Mail *isn’t* analyzing behaviour of its online readers, then why not?”

So the central conundrum remains. The “awkward questions” I referred to in the original post remain, well, awkward.

In the newsroom of the Daily Mail, BT’s practice of responding to public complaints made by customers is anathema. In the online engine room, there’s a reluctance to discuss how Mail Online currently tracks its own users, or could track them in the future. The tension between between these different approaches remains palpable.

+++

UPDATE: 08/06/2010: And finally. . . another irony, one of those you don’t spot when it’s looming right in front of you. But which others see perfectly well. Here’s Martin Belam on yesterday’s Tweet from James Bromley of Mail Online:

What is this? A brand contacting someone who had written something negative about them via Twitter to try and put things right? Isn’t that exactly what the article was complaining about

Er, yes: I think that’s about the size of it. . .

Mail Online prepares for digital revenue lift-off

Posted by Peter Kirwan on 27 May 2010 at 15:00
Tags: Daily Mail & General Trust, Media, News International

Mail Online remained the UK’s most visited newspaper site during April, pulling in 40m unique users. Here’s the league table, measured by daily average browsers during the month:

Mail Online: 2.37m (Up 74.5% YOY)

Guardian.co.uk: 1.84m (Up 22.4% YOY)

Telegraph.co.uk: 1.58m (Up 28.5% YOY)

Independent.co.uk: 0.46m (Down 2.1% YOY)

Mirror Group Digital: 0.44m (Up 11.4% YOY)

It has become fashionable to thumb your nose at numbers like these, which don’t reflect things like engagement.

But just look at the contrast between the eyeballs attracted by Mail Online and its ability to monetize them.

Digital revenues from the Mail Online rose by a creditable 20% to £5.4m during the six month period to March. This suggests a run-rate of nearly £13m for the coming year, if growth continues at a similar pace.

Yet this is way behind the £40m of digital revenues budgeted by Guardian News & Media for the current year. You’d have to guess that telegraph.co.uk is playing in a similar ballpark.

Of course, the comparison isn’t entirely fair. By flogging jobs, property, travel and motors, Associated Northcliffe Digital makes nearly £100m a year in additional revenues.

But if we simply focus on newspaper companion sites, it remains clear that Mail Online is experiencing huge audience growth that it has yet to monetize. Its rivals went through this nervy process a couple of years ago.

Looking ahead, the key question is whether Mail Online has got the tools and sales teams in place to sell the hell out of its inventory between now and Christmas.

The site needs to exploit its own audience growth and encourage advertisers to defect from the newly-paywalled Times and the Sunday Times.

Paul Hayes, News International’s top salesman, joked this week that he will be “in the shit” if Wapping’s paywalls don’t work. This is because he wrote the business plan.

At the Mail Online, publisher Martin Clarke might find himself in a similar position if digital growth disappoints during the next six months.

I doubt it will: Clarke sounds bullish. Commercially, this could be a real breakthrough moment for consumer digital revenues at Associated Newspapers.