How newspapers should earn 10x as much as they do online. Or not.
Just before heading off for Easter, there was a rash of coverage for an Ernst and Young report on ‘the future of national newspapers’. [You can see the E&Y press release here and download the full report here .
The bit that caught my eye was the assertion that eventually got mangled up as ‘we estimate that newspaper websites make between £15 - 20m per year, but they could be making £120m - £250m if they shifted away from a CPM model to more CPC revenues‘.
What they said on the release (and in the clip from the report on the right) was
The CPM (cost per thousand impressions) ad model, used by newspapers online, isn’t generating the necessary growth, according to the report – Media and Entertainment… by numbers. Had the main newspaper websites generated the same revenue per UK unique user in 2007 as Google, which uses a Cost per Click (CPC) ad model, Ernst & Young estimates that they would have earned online ad revenues of between £120 million and £250 million each, just from their UK traffic. But this is hardly the case with many nationals’ total online revenues barely reaching one fifth of this amount.
This is one of those Adam is a man, Adam lives in Reading, therefore all men live in Reading bits of logic. Google uses CPC. Google gets £2.40 revenue per user (according to E&Y calculations), therefore all sites using CPC will generate £2.40 per user.
Anyway, I called Luca the analyst responsible for this who was keen to stress that they weren’t actually saying that we could all increase our revenues by 10X if only we were smart enough to move away from CPM. They were just pointing out the gap..or as they say in the report (which I can guarantee most people won’t actually see).
This gap should be seen as an opportunity for newspapers as it shows that monetising online services in the UK is possible.
Or to be more precise - it shows how monetising the world’s largest search engine and the UK’s largest recipient of ad revenue is possible. Anyway, that’s not quite how it got picked up. EG - this from Forbes
E&Y has calculated that the UK’s main newspaper web sites — The Guardian, Timesonline, The Daily Mail & General Trust and Telegraph titles — could have generated online ad revenues of 120-250 mln stg each in 2007, just from their UK traffic, by charging advertisers on a cost-per-click system.
OK. So let’s be clear - Google’s much higher revenues per user aren’t just because of it operating a CPC model. It helps that those users are actively searching for things and the ads are in direct response to those searches. It also helps to have quite spectacular scale and a completely different profile of activity per user to a newspaper site. It also helps to be active across every possible market. And to operate a hugely efficient demand based pricing model. Oh and having all the power that being the world’s biggest media company kind of helps as well.
We all have CPC elements on our site - either our own deals, or in partnership with Yahoo or Google. I don’t think any of us look at these and think if we were just smart enough to do a whole load more of this, the cash would start flooding in.
In fact - what we have to focus our effort on is doing things that Google can’t do, rather than just aping them. Smarter sponsorship deals. Cross-platform deals. Letting branding ads reach audiences who aren’t specifically searching for anything in particular. Letting advertisers reach specific demographics. The list goes on.
OK. That’s enough. My final thoughts.
1. It’s interesting that in the various bits of coverage, no-one seems to have actually spoken to a publisher to get their feedback on this.
2. Frankly, I think E&Y are being a bit disingenuous - flagging the £120-250m figure and then saying it’s not really what they were saying we could earn..
Simon @ March 25, 2008