Monday Note

This week, back to basics. Forget about complex financial ratios, Ebitda, KPI, even costs. Let’s consider one simple element: for our news businesses, how much are they actually making in revenues, and how do they compare?  Let’s go the way of the cell carrier, let’s use one credible metric, the ARPU (Average Revenue per User): yearly revenue divided by the number of users or subscribers. This index is de rigueur for the mobile industry or for pay TV.  Applying it to media is a tad more complicated.

Take websites. Most are free with revenue coming — the right term has now become dripping — from advertising; measuring their audience is the opposite of an exact science. In the list below, we’ll use Unique Visitors (UV), a rather disputed metric, since it depends on who gathers the data. (UV numbers are audited monthly.) Another hurdle: if you want the ARPU for a multi-channel media group, you will bump into audience duplication issues such as the audience overlap for a major newspapers and its website.  Is it: very likely, somewhat likely, on unlikely that the reader of a magazine will also pick the newspaper from the same group? Or visit a cousin website?

These uncertainties drive our picks below. We took businesses where measuring the ARPU is pretty straightforward, or others where the ratio is public. Our calculations are based on quarterly results as well as estimates from specialized sites such as 24/7 Wall Street. (I didn’t use it, but an interesting blog maintained by Olivier Ezratty, a former French Microsoft exec, compiles ARPU data)

From the wealthiest to the poorest (annualized data):

Cellular carriers. Orange all services: €398 for France, €306 for UK, €292 for Spain and €123 for Poland. Another interesting datum for the French carrier: every iPhone user translates into a revenue of… €1032 per year (on which Orange is making a net margin of 20%).
In the US market, AT&T gets the most of its customers with about $700 per year (mostly thanks to the iPhone). Verizon Wireless yields a relatively modest ARPU of $600. Those numbers explain why a carrier such as Sprint is ready to pay $125 per referral…
In emerging markets, cell phone carriers ARPU go as low as 108€ (Morocco) or even $60 (Bangladesh). Expect the ARPU to grow steadily as 3G spreads: on the 4.5bn cell phones in service in 2013, at least 3.5bn will be 3G handsets.

Publishing. For the reasons stated above, ARPU is difficult to assess for print operations. Let’s take the Washington Post: unlike many others, it provides a breakdown by business unit. In 2008, it made $410m in advertising for an average circulation of 670,000 copies, that’s an ARPU of $612. That is for each buyer of the Post. If you divide by a credible ratio of 3 readers per copy, you get around $200.
Weeklies are not exactly revenue machines when compared to dailies: Newsweek, with a 3m circulation grossed $250m last year, $80 per copy (again, if you divide by the number of readers per magazine…)
In emerging markets, the picture is different: The Times of India is grossing roughly $1bn for a 4m circulation; i.e. $250 per buyer. Not bad for a newspaper whose street price is set just above the cost of scrap paper.

Now the hard part: Internet news sites. Remember the Washington Post ARPU of $612 per buyer of the paper and $200 per reader? Compared to the Internet, it is a gold mine! In 2008, The Post online division made $123m in advertising revenue. Divide by 10m unique visitors for the web site and you get an ARPU of $12.3. Fifty times less than the newspaper.  The New York Times is making even less: between $7 and $10 for each of its 20m unique visitors.
And pure players are getting even worse ARPU:
-    The Drudge Report: $3
-    Perez Hilton (a huge celebrities site): $1.6
-    The Huffington Post: $0.9
-    TechCrunch: $0.85

Think that size matters? It doesn’t. In France, Skyblog, the biggest blog platform (23m bloggers) makes between €1 and €2 in revenue per user/year — but it is profitable (thanks to its ties to a radio station for teenagers). As for Facebook, 175m users and estimated $300m revenue last year, it makes less than $2per user per year.
Free might be a business model, as Wired’s chief Chris Anderson puts it, but it is a tough one. —FF

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