Newsonomics: The steep hill of scale

A couple of years ago, after trying and failing at a free ad-supported business model and flirting with pay walls that brought in negligible revenue, a number of news publishers started to come around to the idea of scale. When it comes to monetizing an audience, it’s go big or go home.

And there is certainly a lot to be said for scale, since it appears to be the only way of making any real money selling journalism online. Big players like BuzzFeed, HuffPost, an Business Insider, even medium sized ones like Gawker, all make money by funneling colossal amounts of traffic into a hopper. Out the other end squeezes a non-colossal amount of revenue, which is used to pay for a handful of journalists.

It’s not a great business model, but it is pretty much the only one on offer right now. Which is why Postmedia — as it prepares to downsize yet again — appears to be moving into the digital-scale business. More interestingly, Jeff Bezos (who knows a thing or two about getting people to pay for things) has given up on subscription revenues for the Washington Post. Instead, he’s going after scale:

Bezos also said that he wants to move the Post from “making a relatively large amount of money per reader, having a relatively small number of readers—that was the traditional Post model for decades, [a] very successful model by the way,” to, “a model where we make a very small amount of money per reader on a much, much larger number of readers.”

Far be it from me to tell the second richest guy in America how to make money. But getting money from scale is a pretty steep hill to climb, and it’s not clear to me that it can be done in the context of a traditional newsroom. Here is some more napkin math:

About ten years ago, a mid-sized metropolitan newspaper in Canada with a circulation of 120000-150000 might have been pulling in revenue of about $120-$150 million per year, from all sources. That’s subscription revenues, ads, classifieds, inserts, etc.  Depending on the competitive environment, some papers would have made less, some a lot more. But just so we know what ballpark we are in, call it $1000 in annual revenue per subscriber.

For comparison, last year BuzzFeed made $170 million in revenue, and is projected to bring in $250 million this year. Before it got suplexed by Hulk Hogan and Peter Thiel, Gawker was bringing in approximately $50 million, with a profit of about $1-2 million per quarter.

Here’s where it gets grim: BuzzFeed currently gets about 200 million monthly unique visitors. Gawker media as a whole was getting uniques in the 50 million/month region.

So, to ballpark these figures: The digital scale model brings in approximately one dollar per unique monthly visitor.

Compared to print’s one thousand dollars per subscriber, that is a very small amount of money. To get back into the major leagues of print revenue, you need a LOT of traffic. That isn’t to say it can’t be done, but to put it in perspective, the New York Times brings in just under $400 million in revenue per quarter.

Scale is a problem for newspapers because, frankly, journalism is expensive. Or to put it in bean-counter language, the people driving traffic make too much money. For a newspaper to scale into BuzzFeed/Business Insider land, it has to stop being a newspaper.

And that is a serious, serious problem for quality journalism. My own suspicion is that the real solution is the one that only people like Jeff Bezos are positioned to do give: Philanthropy.



Newsonomics: The steep hill of scale — 1 Comment

  1. they should foment the idea initiatives for taxes on sugary drinks and snacks. this seems to prompt a lot of ad spend by interested parties