A look at digital newspaper’s profit margins

The trends in the publishing industry have remained largely unchanged over the past few years. They can be summed up like this:

• Print output is stagnating or declining: from 2015 to 2016 it slowed by 4.5% in the UK, 3.5% in France, and 2% in Germany.
• Ad revenue is getting lower: print ad income in the UK went down 13% last year. In France, digital ad revenue went down by 31% (cf. 2017 Reuters Report)
• Digital subscriptions are gaining popularity and market share: +20-25% year-over-year growth is commonplace in European markets

But it’s not just about revenue or volume. At the end of the day, profitability is what keeps the lights on. And due to newspapers’ rather complex cost structure, it has proven difficult to assess how digital and print compare.

A recent article from the Poynter institute, followed by an interview with the New York Times’ CFO James Follo, give us a chance to look at these indicators.

Print still a major revenue driver

Nearly all newspapers now offer some form of digital-only subscription, available at a lower price point than a full-on print product, meaning one needs more digital subscribers to generate the same level of revenue. If you look at the New York Times’ example, despite digital readers outnumbering print readers by a factor of two, print still generates 70% of circulation-related revenue.

This is an extreme example of a newspaper whose print subscription can crest $1000/year, but the general rule is that print remains a large revenue driver. There is more to it than that, though. First, as mentioned above, print circulation is declining, and so is print ad revenue. But that’s not all: cost of impression and distribution play a part, too.

Digital offers higher profit margins

Due to increases in paper and ink prices, printing costs for newspaper keep on rising. Last year, each newspaper cost the NYT 7 cents in raw materials only. Add to that production equipment, wages and distribution, and you’re looking at over 30 cents per copy, which is at least 10 times higher than distributing an equal number of digital publications.

With digital and print priced identically, it’s easy to see how much higher an e-paper’s profitability is.

In addition, the marginal cost of new subscribers is close to zero, and cloud-based digital content production platforms have the ability to scale much faster than printing facilities. If your number of subscriber increase, you just need to purchase (or have your provider purchase) more cloud capacity. This is why the aforementioned 20-25% yearly growth rates for digital subscriptions are not cause for concern.

A digital (edition) future

While print remains a big (and often the biggest) source of contributions for news outlets, circumstances such as the decline in circulation, competition of other supports and rising manufacturing costs mean other, profitable revenue source will be needed for newspapers to survive.

A recent report by MPP global solutions, a company specialising in content monetisation, found that 34% of European newsmakers see e-papers as their biggest source of additional revenues, ahead of news apps & websites (25%). Combine that with E-paper’s low cost of publishing, their ability to create habit, and how they can be created using the same content creation platforms as print, and it looks like newspaper’s future best revenue source is an obvious one.