Martin Langeveld points out something interesting in Scripps’s fourth-quarter earnings: Those already-dismal online advertising numbers you’ve seen for newspapers? They’re badly inflated.
If you want to get even more depressed about the state of newspapers, consider that a very large percentage of their online ads come from people who advertise in the print edition and are given online ads as a sweetener or “upsell,” as we and others have pointed out before.
What’s interesting, though, is the specific data Langeveld pulls from this Scripps earnings release (emphasis mine):
The decline in online revenue…is attributable to the weakness in print classified advertising, to which roughly half the online advertising is tied.
How much of that online advertising goes away if the print advertiser does? That’s a critical but difficult-to-answer question. Critical because, of course, print advertisers have been going away at a near-catastrophic clip, but also because it directly affects how we attempt to answer the paywall question.
The way online ads are counted on the books now artificially tilts the calculus of paid content toward the anti crowd.
At Scripps, online ads were down 5 percent in the fourth quarter from a year earlier. But when you take out the upsells tied to print, online ads soared 21 percent. Since overall sales were negative, we can deduce that the decline in upsells had to be even greater—either in percentage or in volume—than the increase in online-only ads.
As Langeveld says:
The rise in online-only is positive, but it’s worth pondering whether the “roughly half” that’s “tied” to print ads should actually be considered online revenue at all. Essentially, it’s revenue from “upselling” or “value added” programs for print advertisers; it disappears when the print ad disappears; and those print ads could probably be sold for the same price without the incentive of the online upsell. In other words, half of the company’s online revenue results from journal entries that move print revenue to the online column, not actual selling of online inventory as such. This is not unique to Scripps, and is worth looking at more closely across the industry.
Indeed.
Take away half the online ads and you have a much stronger case for charging readers online since you have much less (existing, at least) ad revenue to lose online than newspapers are leading people to think.
We need more reporting on this accounting trick. It’s admirable that Scripps disclosed the upsell figure. But what about everyone else? I noted a few months ago here that Alan Mutter has said two-thirds of industry online revenues are from upsells. If I were an investor in a newspaper company I’d want to know that right away.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.