Another Scary Online-Only News Business Plan

Earlier this week, All Things Digital at The Wall Street Journal posted an interesting spreadsheet that tried to answer the question: What would your P&L look like with a 20-person local online-only news site?

Mark Josephson of local content aggregator Outside.in, the author of the spreadsheet, concluded that with very aggressive traffic assumptions, lots of help from third-party sites, and most inventory filled as remnant space by ad networks, you could have a margin of over 40%. Not bad. However, the fact is it’s a pretty small business overall — $6 million in revenue total, and only $1.4 million of that sold locally by a sales staff.

You could argue about some of the assumptions (especially what look like optimistic traffic numbers), but the fact is, Josephson is right. If you are building a local online news business from scratch, and you are only thinking about selling traditional banner inventory as your revenue source, any spreadsheet you do will look much like his.

Here’s the question: If you had a site like the one in the spreadsheet, with 40 million monthly pageviews, that would mean you have to be in a fairly large city (Dallas maybe? the local news site there probably has about this traffic level). If you were in a city that big, with that visible a site, why would you settle for $1.4 million in local ad revenue, when the market of local ad dollars is so much larger? Why have a local sales force, if all they can sell is banners?

Local advertising spending overall is down recently, like everything else. But everyone I’ve spoken to who has tried to sell to local advertisers recently tells me that even now, they are more than willing to try new opportunities if they’re creatively packaged and affordable. They may not want to be in the local metro daily (since it’s probably declining in readership, drab, and overpriced). But they still need to generate customers. They’re willing to try everything from Web ads to local weeklies, coupon books, event sponsorships, e-mail marketing, merchant directories, SEM. If you want a chance at a serious and prosperous local media company, you’ll need more than a busy Web site — you’ll have to build up a much richer range of channels and solutions for advertisers.

The opportunity is there for a local media company to be the authority on how to target customers in that market, via whatever channels local merchants want, whether it’s print, online, event sponsorships, e-mail, or access to a deep and proprietary local marketing database. Not that it’s easy to do, but it’s the only way to get away from the “little business in a huge market” suggested by the Josephson spreadsheet.

It’s Dumb to Charge for Some Sites, But Brilliant for Others

Once again there’s active talk about some new plans to charge for NYTimes.com:  one model where only heavier users of the site pay for the privilege (as in FT.com’s system), and what is described as a “membership model,” where you’re paying for, well, various as-yet-undefined benefits of being a Times “member,” not just for news.

I am someone who has long thought it’s a little crazy for a fabulous brand like the Times not invent something they can charge for online. But plenty of observers still regard every sign that a newspaper is going to charge for content as a pathetic move that’ll never work. In some cases, that’s clearly true. But there’s an actual chance of success if publications approach the question, not as “How do I start charging for what we’re doing online?”, but instead “What do I have the skills and relationships to put together that is worth money to people?” Deliver enough utility, exclusivity or entertainment, and you’re crazy not to charge for it.

Even this idea of a “membership” isn’t as lame as it sounds. Why not try to build multiple benefits into an annual fee? Yes, there have been plenty of “affinity” programs — even the Times had some useless subscriber “benefit” card a few years ago. But these programs need to go beyond the usual 10%-off-your-second-entree-before-6PM discounts people will never use. Why can’t a local publication put together a package of genuinely valuable privileges — local music, wine tastings, networking, food events, mobile alerts, guides, handbooks — one that would make buying an annual “membership” a no-brainer? Surely there are enough advertisers everywhere right now who are desperate enough for qualified leads that they’d get on board with something innovative.

Putting a subscription wall up in front of a not-very-useful product won’t work. Designing some kind of a package of information and other benefits that delivers enough value that you’d leave it on your credit card, year after year — well, publishers are dumb not to invest in figuring out what that might be.

Where Are Local Ad Dollars Going, Then?

Sad to see in today’s wsj.com that the telephone directory industry is going the same way as the newspaper industry – plummeting print advertising from local businesses, and drab Web sites that don’t begin to provide replacement audiences or revenues.

This follows another recent survey that says local online spending will also experience dramatically slower growth next year.

And yet … local businesses need to advertise somewhere. In a recession, in fact, they want leads and new customers more than ever.

I wonder if these depressing numbers don’t in fact signal an opportunity. Everyone says Google is ultimately going to “own” local information in some way, but I’m not so sure. Buyers don’t just want an address and a phone number and a map, and (except for restaurants) that’s mostly what Google now has. If you’re looking for a rug cleaner or refrigerator repair (as I was last month!) most of us also want to see what the business has to say about itself – and of course, most local businesses don’t have Web sites that are adequate to the purpose. There are still opportunities out there, both in print and online, to build an effective directory business that makes economic sense.

Behind the Newspaper Online Ad Drop

Good roundup in the New York Times on the not exactly shocking falloff in newspaper Web ad revenue. The story points out (accurately) that prices on banner ads have been undermined by ad networks (where banners often net publishers $1 per thousand or even less). Some newspapers’ response is to pull out of the networks, reduce inventory, and try to preserve what’s left of their higher CPMs.

This is part of the way to respond, but I wonder if there aren’t two other elements newspaper sites (or any sites) need to deal with.

(1) In my experience some publishers just haven’t lowered their banner CPM expectations to get in line with reality. The fact is, there’s a huge glut of banner inventory on the Web. You may not want the $1 CPMs you’ll get from a network, but that doesn’t change the fact that your rate card may be simply look too high compared to the ROI potential buyers are expecting.

(2) If you want to sell your banner inventory at higher prices, ultimately you have to tell either an environment story (convince people you have an editorial package that by its quality or coolness or audience engagement enhances the value of the ads it carries) or a targeting story (a highly vertical market segment that no network can get you). I wonder how many of the newspapers whose revenues are falling could really make either of these two cases effectively — either online or in print?

New wsj.com, old bigmoney.com

Once I got over the four horizontal navbars at the top of the page, I thought today’s new wsj.com was a long-overdue improvement. The home page looks great. And despite predictions that there’d be lots more free content, so far five of the top six stories in “What’s News” still require a paid subscription ($89).

They’ve also launched their new Journal Community, although at first glance it suffers from the same social networking “empty bar” problem I’ve ranted about before. Too bad News Corp. wasn’t able to buy LinkedIn, as was rumored a while ago before its billion-dollar valuation. That would have made more sense than starting over here from scratch.

Surprising to see no ad units above the fold on the home page, unless there are some spots that just don’t happen to be sold.

Meanwhile, the Washington Post’s new Big Money has little to read, and can’t even keep its home-page widgets from colliding into one another (below).

Is Podcasting Over?

Great post from Internet radio guru Kurt Hanson claiming that podcasting is still a relatively insignificant audience phenomenon with not much money to be made from it.

He runs some interesting numbers on NPR’s extensive podcasting investment and suggests that despite well over 200 million downloads over time, it’s not very significant in terms of new reach (and new revenues) for the network. My wonderful spouse couldn’t survive without her iPod full of NPR, but maybe Kurt is right. Unless funders and sponsors are ponying up new dollars to support the podcasts, or podcast listeners end up being even more generous to the their local NPR stations, what’s the use?

I generally tell media clients that unless they’ve got a brilliant ad salesperson who can somehow get some real sponsorship dollars from podcasting, they’re better off spending their multimedia bucks on video and audio content that can live happily on their sites. As the Hanson post points out, podcasting reaches a much smaller potential audience than ordinary old Web audio and video (streamed or on-demand).

Me, I’m still frustrated that the classical-music podcasts and shows I’d love to be listening to on my iPod either aren’t available or have the music stripped out of them because of the outrageous music royalty situation.

My Home Page Has No Business Model

My home page has been My Yahoo! for as long as I can remember. Once they turned it into a decent RSS reader, I’ve become even more obsessed with it and check it more often than I ever have … surely I look at it 20 times a day at least.

But I’m mystified about how this heavily personalized page can look itself in the mirror every morning, since it carries no advertising at all, much less anything even slightly targeted. Here I’ve effectively told Yahoo! all my interests, professional and personal … the industry I work in, the sports teams I follow, the stocks I watch, the kind of music I like, the cities I travel to often. With all that data to chomp on, there isn’t so much as a single text ad on the page. (There were some amazingly untargeted banners for a while, but now I don’t even get those.)

It’s hard to believe that I’m complaining about no advertising, but from a business standpoint this makes me a little crazy. I’m sure Yahoo’s current management is distracted and all, but things must be pretty bad to let a franchise product like this go along without generating a nickel. Anyone have an explanation?