Online Revenues Shine While Print Revenues Fade as Two Large US Media Groups Prove Their Internet Investments Were the Right Thing to Do

Philip Stone July 25, 2005

The New York Times and Dow Jones both made large Internet investments this year, and already they are successfully impacting the bottom line, with online ad revenue increasing for each company in excess of 25%, according to the Q2 earnings reports. Print, on the other hand, showed a low single digit increase at the Times and a decline for Dow Jones.

Can there be any further question where the growth engine is for media companies today?

The online figures are really astounding for how much impact they are making in the financial results this soon after the deals closed. At the New York Times, which spent $410 million buying About.com earlier this year, that business increased ad revenues by 39%, providing an operating profit of $2.5 million on Q2 revenue of $12 million.

At Dow Jones, which spent some $520 million for Marketwatch.com, its electronic publishing division saw revenue jump 33.5%, much of that driven by its new investment. DJ also saw an unusual reader increase  for its wsj.com, with the subscriber count going up by nearly 9%, the largest such increase since 2002.

But its when you compare the Dow Jones print numbers versus online that you really begin to understand the dynamic change occurring in the US media business.

Overall, DJ reported $454.2 million in Q2 revenue, up 3.7% over a year ago.   But print revenues actually dropped 7.2% representing $18.3 million for the quarter and almost $40 million for year, but online revenues for the same 12 months grew 33.5% to $128.4 million. Print publishing advertising revenue fell 9.5% compared to 12 months earlier. Financial ad linage dropped a whopping 15%.

Add special additional Q2 costs attributed to DJ finally extricating itself from the money-losing CNBC operations in Europe and Asia, and online operations grew to represent nearly half the revenue of print.

At the Times, online revenue, including the Times’ own web site, rose 27% while at its new about.com unit alone advertising sales increased 39%.

Its print unit saw revenue increase 1.2%, with advertising revenue up 1.9% but circulation revenue decreasing 0.8%.  National advertising was flat, retail advertising rose 5% and classified advertising was up 2%.

Take another look at those percentages mentioned above. When talking about print we are in the low single percentage figures. When talking about online we’re talking about increases in the 20s and 30s percentages.

And the New York Times makes no secret of how strong online advertising is. Its senior vice president of digital operations readily admits to increasing advertising rates four times already in the past 12 months with probably more to come. That fits with reports from media buying agencies complaining there is a shortage of inventory at the most sought-after media online sites.

But even given that online revenue growth, the Times posted a near 20% profit decline on a total revenue increase of 2.6%, partially because of expenses connected to its already announced cull of some 190 staffers. Without the about.com revenue the total revenue increase would have been just 1.1%. Wall Street was not amused, marking the shares down 1.7% to near their 52-year low, although they recovered a bit the next day.

At Dow Jones, this has also been a year to sort out its international difficulties that have been a heavy drain on the bottom line. Its WSJ editions in Europe and Asia have experienced similar advertising declines as the parent newspaper in the US. DJ has responded by announcing its Asian and European editions will turn compact on October 17, and gave the job of completing a smooth transition to Mario Garcia, the world’s leading expert in turning broadsheets into compacts.

His job also entails ensuring a close convergence between the print editions and wsj.com that has only about 5% of its client base outside the US. Many of the stock tables, for instance, are said to be transferring to the web – something that some US newspapers have already started to do -- and while DJ says there will be little change in the number of stories each day it expects considerable production savings plus revenue increases from new advertising opportunities that will permit, for instance, for the first time display ads on page 1.

CNBC/DJ logo limited edition

 

But that still left losses from its equal partnership with NBC/Universal in the CNBC business television operations in Europe and Asia. Dow Jones desperately wanted out, for it was losing some $17 million to $19 million a year.   NBC has now obliged, but the $36.7 million after tax charge to DJ in the 2nd quarter (44 cents a share) meant that its total Q2 earnings dropped to just  $861,000 or one cent a share. The deal should be final by year-end depending on regulatory approvals.

DJ is also heavily investing in its new Saturday edition expected in September, hoping to draw upon the success of rival Financial Times with its Saturday edition that draws heavy advertising from luxury brands and consumer goods.

And it not just in the US that major print companies have seen the light and have started investing heavily in online. In the UK, for instance, Trinity Mirror, which has experienced severe circulation declines for its tabloid Daily Mirror, has announced a policy of investing online and last week spent £16 million for smartnewhomes.uk.co.

But whereas the US sites have been bought for the hundreds of millions of dollars, and the unique visitors are in the tens of millions, this UK site has just about 400,000 visits a month, but 85% of UK home developers advertise on it.

United Business Media has put two major classified advertising sites up for sale and analysts are predicting they could go for around £100 million.

Gannett, the US’ largest newspaper publisher, announced that advertising at its flagship USA Today declined 1.4% ion Q2 while the number of pad advertising pages dropped 6% from a year ago.

Given numbers like that it is not surprising that Gannett’s most recent investment was just last month when it laid down $100 million to buy Internet business Pointroll.

As they say, the writing is on the wall.

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