“On the big news websites, I think the jury is still out as to whether pay walls will work for general news.” he said. “But those sites attract strong advertising revenues and are also important drivers for our transactional businesses… consumers had shown a willingness to pay for premium or niche content, and for add-on products and services.” – SMH Fairfax unveils plans to reorganise print, online
Matt Shanahan’s analysis of Fairfax in September calculated their ARPU is Au$14.35 (See Fairfax Media is Maximizing their ARPU Equation) and in that analysis he identified that transactional page views provide more margin than display advertising impressions for Fairfax Media. That’s how they outperform the benchmark. Or put another way the reason why Fairfax isn’t so keen to pursue the pay wall strategy is because their online newspapers are “Freemium” vehicles for driving traffic to their transactional platforms.
Fans of the economics of online pay walls and the ongoing challenge of converting traffic into customers should make their way over to Matt Shanahan’s blog and check out this ongoing series on the unit cost of engagement.
“In the debate about business models for digital publishers, the cost of audience impressions is often underestimated. The expense to create a sellable inventory of impressions requires more than content production, it also includes the cost of audience development, which can greatly exceed the cost of content production.” - Publisher vs. Advertiser Priorities: Loyalty vs. Scale
“Why is calculating unit cost important? Understanding unit cost of engagement is critical to maximizing the lifetime value of a subscriber.” - Importance of Analyzing Unit Cost of Engagement in Paid Content
“In paid content, a pricing disparity is defined as a subscriber paying too much or too little for the content compared to their peer subscribers… Because subscriber value is directly correlated with engagement, the unit cost of engagement can be used to uncover pricing disparities and opportunities for digital revenue optimization.” - Analyzing Disparities in the Unit Cost of Engagement
“Aligning actual subscriber engagement to be within the minimum and maximum unit costs of engagement is the revenue uplift potential for a publisher.” - Estimating Revenue Uplift Potential From Unit Cost of Engagement
Three years ago Don Dodge wrote a post on how Google’s search engine advertising mode had revolutionised the online revenue model. In that post he calculated that Google was achieving revenue of $0.12 per search query at the Global Level and $0.19 per search query in the USA.
His figures suggested that Google was achieving a RPM rate per query of US$190-$120. Compare this to the wholesale “bucket” rate for advertising on the long tail of the web (e.g. US$0.50) and the RPM of other leading online media groups (e.g. Demand Media’s US$11.91 – See Matt Shanahan’s When ARPU = RPM = CPM, Everybody Wins) and you can see just how much Google’s approach has revolutionised the media and advertising industries.
“Each 1% of market share is worth at least $1 Billion in market cap. Google has 50 points of market share and a stock market cap of $150B, or $3 Billion for each 1% of search market share. Other competitors don’t win the same revenues and market multiples, but even at the low-end, 1% of market share is worth over $1 Billion.” - Don Dodge
Further Reading
- Farewell to the Ribbons of Gold
- What If: Journalism is the real reason Newspapers are dying?
- If you think the internet is responsible for the decline in newspapers you are wrong
Posted on November 23, 2010
0