It’s A Long Hard Slog To Make Free Newspapers Profitable

Philip M. Stone April 23, 2008

Publishing a free newspaper does not come cheap as Rupert Murdoch’s News International in London can attest with its thelondonpaper losing close to £17 million ($34 million, €13.5 million) in its first 10 months. And Metro International, the largest publisher of free newspapers around the world has reported a loss of €5.6 million, $8.9 million, £7 million) in the first quarter.

So does the free business model that seems so popular with readers really work for publishers? According to Dr. Piet Bakker, perhaps the foremost expert on global free newspapers, many companies that might have looked for their free newspapers to have been profitable in three years are now looking at longer periods, especially if they are starting up in competitive free markets. He believes that 75 free newspapers have already closed.

Bakker,  professor  of cross media content at the School of Journalism and Communication at the Hogeschool in Utrecht, The Netherlands and who runs the authoritative NewspaperInnovation.com,  says there are now free newspapers distributed in 56 countries with a total daily circulation around 43 million and read by at least 80 million people daily. One would think that with all that activity publishers must believe this is like a license to print money, but the evidence seems to point otherwise.

Bakker gave ftm his feel – “a very rough calculation” -- for the profitability of the free market. “In 2008, 475 editions (330 titles) are still published of which 70% were launched in 2005 or later. Those 2005 and later titles probably are not making any profits, and some of the older ones are not making profits either. First launches in some countries might do well such as in Brazil and Mexico, but it would surprise me if more than 30% of free newspapers now make a profit.”

Thelondonpaper loss caught the eye because few people thought it would be that high. The newspaper distributes some 500,000 copies Monday – Friday  in London and close suburbs, and it is in direct competition with the free London Lite paper from Associated Newspapers that distributes around 400,000 daily and Associated’s paid-for Evening Standard whose circulation has dropped dramatically to 284,000 and even then nearly 100,000 of those are bulk sales.

Associated launched London Lite to protect the Standard. It has not announced a P&L for the free newspaper although it claims its losses are far less than for thelondonpaper, perhaps because its newsroom has access to the Standard’s news copy and its distribution system.

Associated might be liking what it sees from its London Lite – it has applied to register the “Lite” title for several UK cities. Unlike News International, Associated is not new to the free newspaper game, it won the right several years back to use the Metro name in the UK (it’s not affiliated with Metro International) and its various Metro editions across the country have an aggregate circulation of 1.35 million with 742,000 in London alone.

The free newspaper distribution in London is staggering. There are two AM free newspapers, Metro, and CityAM that has a circulation of some 97,000 and is distributed mainly in the financial centers. Then there are the two PM newspapers and that means Londoners are swamped with about 1.75 million free newspapers daily during the week.

One of the world’s leading free newspaper titles is 20 minutes – so called because it should take just about that long to read through the issue. If the London PM newspapers were to adopt names under a similar philosophy they would be named “Maybe 7 Minutes”. It’s no wonder, therefore, that trash has become a major issue in London with so many free newspapers discarded on the streets and on public transport that city councils are cracking down in forcing the publishers to place more recycling bins around the city (the publishers didn’t do that very willingly, probably a cost not in their business plans, but the councils threatened legislation to stop their distribution and that took care of that).

And if so many newspapers are being trashed every night before the consumer reaches home then what kind of an advertising buy can those newspapers be? It’s a very real issue for advertisers and probably why advertising rates have remained low and why the publishing losses keep mounting – it’s one thing to get an audited circulation of 500,000 but how many of those papers are actually read to the point that an advertisement has an effect on the reader?

News International has a track record of long-time support for a newspaper that doesn’t make money – The Times of London has lost money every year since Murdoch bought it in 1981. Former editor Robert Thomson, now publisher of The Wall Street Journal, had said last year that the newspaper would make a profit in this fiscal year that ends in June and that will mark a major milestone if it comes true. So, the feeling is that Murdoch will continue funding thelondonpaper and Associated will continue with London Lite and both newspapers hope for profits after five years. Still, it shows very deep pockets are needed to give newspapers away for free.

Metro International backed up that concept with its Q1 results showing a loss, albeit less loss than last year. Chief executive  Per Mikael Jensen explained, “”Difficult market conditions, especially in Spain, Denmark and the US put pressure on ad volumes and price, but tough actions on costs are helping to mitigate the impact of the economic downturn being experienced in some markets.” He told the Wall Street Journal that “The US market is probably the worst it has been since the 1930s for media companies.”

The US is a major problem for Metro – of its €5.6 million Q1 loss, €2 million came from its three US titles. The fact it is in only three US cities – Boston, New York and Philadelphia -- was its big mistake.  America is too big in which to own just three newspapers and expect national advertising campaigns. The lack of big advertisers contributed to its US papers losing big in Q1 – sales down, for instance, 12% in Philadelphia and 8% in Boston.

And one should not forget what happened to Nyhedsavisen in Denmark in late January – Icelandic group Baugur sold 51% of its Dagsbrun Media that owned the home delivery newspaper for reportedly 1 Danish crown. This is the same Baugur group that suddenly closed down BostonNow last week because of severe economic problems in Iceland and it has decided to get out of the media business.

Danish investor Morten Lund bought the Dagsbrun shares – he was one of the early investors in Skype and many other Internet start-ups – and he says that after further investment he expects the newspaper to break-even by November. Berlingske Tidende had reported that Nyhedsavisen, launched in October 2006, had lost some €56 million in 2007.

So all in all it seems being a free newspaper publisher is no guarantee to make a quick fortune. Indeed it looks like quite a long hard slog to get to profitability which is why only those with truly deep pockets will make it to the finish line.