A hard way to make money.

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Old Media's Online Ads Dilemma

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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News Corp., the pale shadow of the company (most of which is now Twenty-First Century Fox Inc.) that is home to Rupert Murdoch's legacy print businesses plus a few other odds and ends, had a tough earnings report Wednesday. Net income fell 52 percent from the same quarter a year earlier, and both it and revenue disappointed Wall Street. As a company that gets 57 percent of its revenue from outside the U.S. yet reports in dollars, News Corp. could blame the strong greenback for some of that disappointment. But a longer view shows why its stock has gone pretty much nowhere since it was spun off in June 2013. Advertising revenue has kept declining, while circulation revenue has barely grown:

Still, for a text-centric media company with roots that go back to the 18th century, going nowhere actually isn't bad. Consider Time Inc., another text-centric enterprise recently cast off by the entertainment behemoth it spawned. On Thursday it said first-quarter revenue fell 8.7 percent from a year earlier, and reported a net loss (albeit a smaller one than a year ago). At Time Inc., advertising and circulation revenue have been declining in lockstep for years:

This is the puzzle for companies built around publishing businesses that thrived in the 20th century. Ad revenue has proved ever harder to come by as reading moves online and mobile, but charging for digital content can drive readers away. With the Wall Street Journal, News Corp. has a publication that lots of people have long been willing to pay for online. With its U.K. and Australian newspapers that's been more of struggle, although the company's paywalls have had some success lately. News Corp. also owns a book publisher, HarperCollins, that's been successful in charging for its products be they paper or digital. Time Inc., on the other hand, has repeatedly changed its mind about how it wants to make money online. For decades it has offered cheap subscriptions to its magazines (People being a very important exception) and relied on print advertising to pay the bills. That business model is in steady decline, and it's still not clear what the company's new model is.

Then again, there are worse things than steady decline. There's also collapse, which is what newspaper ad revenue did in the U.S. starting about 2006. Unfortunately for McClatchy, that was the same year the Sacramento, California-based publisher doubled down on the regional newspaper business by buying Knight-Ridder. Something other than hilarity ensued:

Circulation revenue jumped a bit in 2013 after McClatchy papers started rolling out metered online paywalls, but overall the business is a shell of its former self. In the print era, newspapers offered a bundle of goodies (classifieds, coupons, comics, sports scores, stock prices, news) that together garnered a mass audience. Online all those offerings have been separated, and the number of people willing to pay for news alone just doesn't seem big enough to support major journalism enterprises in city after city. It may well be big enough, of course, to support a few elite national publications such as the Wall Street Journal and the New York Times, where circulation revenue famously passed ad revenue in 2012:

So that's one model for success, although with the Times' circulation revenue little changed in 2014, it doesn't seem to be a model for growth. The chart above excludes the big chunks of the New York Times Co. that were sold in 2012 and 2013 (the Regional Media Group, New England Media Group and About.com), but it still shows a much smaller business than the one that existed in 2006. Is there any model for growth in the newspaper business?

Well, there's Schibsted, which is based in Oslo and is a big newspaper publisher in Norway and Sweden. It built separate online classifieds businesses around the world, and had advertising growth when other legacy publishers were in steep decline:

There are about 7.5 Norwegian kroner to the dollar, in case you were wondering. Schibsted is widely admired in the media business and studied in business schools, but even there the advertising growth trajectory appears to have topped out. It would be fascinating to see such charts for BuzzFeed and Vice Media, two new-media companies that seem to have figured out ways to make advertising pay online, but they're closely held and don't have to share their financials. Which leaves AOL, a purely digital, more or less text-centric media company with a very strange legacy subscription business:

When Tim Armstrong left Google to become AOL's CEO in 2009, the company's dial-up Internet access business was already a dinosaur. But AOL subscriptions still haven't quite gone extinct, and Amstrong has used the money they throw off to build a digital media company (he acquired TechCrunch and the Huffington Post, among other things) that actually has rising ad revenue. The company, which will report first-quarter earnings on Friday, isn't hugely profitable, and you could argue that AOL shareholders would have been better off taking subscribers' money and investing it in something else. You could also argue that AOL subscribers would be better off if they stopped sending the company money. Still, rising ad revenue at a company engaged in journalism! That's something.

  1. Seems more accurate than "print," no?

  2. And also my former employer.

  3. From the company's 10-K: "As of December 31, 2014, we offered price plans ranging from $33.99 to $4.99. These plans include a variety of features such as maintenance services, online technical support, anti-virus software and identity theft protection. ... The number of domestic AOL subscribers was 2.2 million, 2.5 million and 2.8 million at December 31, 2014, 2013 and 2012, respectively."

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net