National newspapers should maximise online opportunities, says Ernst & Young

Younger readers continue to get their news online

London 19 March 2008: Research released today by Ernst & Young reveals that with their websites reaching millions of unique users every month, UK newspaper groups could increase revenues by changing the way they set their advertising models.

The research also highlights that UK national newspapers are struggling to attract young readers to their paid-for titles, with over half of the UK’s 15 to 44 year olds now using the internet for their daily information. National titles have lost an average of 330,000 daily copies every year since 2003, which is impacted by the shift from the younger generations, highlighting the need for newspapers to move their focus from paid-for circulation to online.

CPM v CPC
The CPM (cost per thousand impressions) ad model, used by newspapers online, isn’t generating the necessary growth, according to the report – Media and Entertainment… by numbers. Had the main newspaper websites generated the same revenue per UK unique user in 2007 as Google, which uses a Cost per Click (CPC) ad model, Ernst & Young estimates that they would have earned online ad revenues of between £120 million and £250 million each, just from their UK traffic. But this is hardly the case with many nationals’ total online revenues barely reaching one fifth of this amount.

Luca Mastrodonato, media and entertainment analyst at Ernst & Young comments: “The online revenue gap between nationals and Google is also evident if we consider that the latter could have generated £2.40 per UK unique user per month from its websites in 2007 compared to top newspaper websites’ £0.10 to £0.13.”

“This gap is an opportunity for newspapers as it shows that monetising online services in the UK is possible. But to do so, newspapers need to move away from the volume based CPM model towards more interactive ad models such as CPC (cost-per-click) or CPL (cost-per-lead).

“CPM has the characteristics of display adverts in traditional media, which sell on reach rather than interaction. However, with many online users spending time interacting on social networks and the like, by circulating millions of untargeted adverts publishers may be missing out on opportunities to increase their ad revenue to the advantage of online specialists.”

With ad spend shifting online publishers are investing in their digital offerings. But monetising online services is not proving easy for UK publishers, despite some sites reaching millions of unique users every month. Ernst & Young estimate top newspaper websites generated £15m to £20m in ad revenue in 2007. This compares to Google’s UK ad revenue of £1.26bn in 2007.

A lost youth
Despite years of expensive upgrades to the look and feel of newspapers, publishers are struggling to attract young readers to their paid-for titles. Even expensive high profile giveaways only seem to have a short-term effect. Free titles, however, have been relatively successful in attracting young readers, highlighting the risk that a generation could be lost to paid-for print forever.

One thing is certain; with the rise of free titles and internet usage, the paid-for daily landscape will look very different ten years from now.

Mastrodonato comments: “The covermount strategy does work, but only in the short-term and with premium offers. Despite the Mail on Sunday giving away a number of covermounts in 2007, only the Prince “Planet Earth” giveaway, which cost a rumoured £1 million, resulted in a significant increase in monthly circulation (+4.4% year-on-year). If newspapers believe distributing covermounts will continue to be part of their strategy, they should look for ways of, at least, sharing their cost.”

Looking forward…
Mastrodonato continues: “Whether publishers decide their future will remain paid-for or free; the internet will play a central role in all newspapers’ future business models and online revenue will have to offset any losses on the print side. Organic growth, however, may not be enough and with deal multiples likely to be softer in the current credit crunch, some companies may become attractive targets.”

Competition in the information space is tough but if newspapers successfully transfer their valued and trustworthy print brands online, they will have a solid foundation from which to develop future revenues.

“To succeed in the medium to long-term, publishers should focus on: monetising online services, more focused targeting of younger age groups, and finding alternatives to expensive giveaway promotions.”