Frederic Filloux has some harsh criticism of The Huffington Post’s business model, calling it “a digital sandcastle.”
But what caught my eye was this at the bottom of his piece:
What ailing AOL bought is vapor. About 35% of the HuffPo’s users come form Google. They land on cleverly optimized content: stories borrowed from other (and consenting) medias that mostly generate blogging and comments. This is the machine that drove 28m unique visitors in January, which makes the HuffPo close to the New York Times/Herald Tribune audience of 30m (unique visitors). With one key difference: each viewer of the NYT websites yields an (Average Revenue Per User) of $11, ten times more than the Arianna thing. Based on the HuffPo’s valuation, the NYT Digital would be worth billions. That’s a consolation.
If only this were true.
Alas, his numbers are off there. If the NYT were really getting $11 per user, it would be rolling in $330 million annually from its website. But the whole news media group at New York Times Company only brought in $212 million in digital ads last year, and somewhere just less than a third of that probably came from Boston.com and its other smaller newspapers (applying the revenue breakdown for print and digital ad sales of The New York Times, which brings in two-thirds of the News Media Group’s overall ad revenues. NYT Company doesn’t break out digital numbers in the segment).
So perhaps the Times/IHT brought in (very roughly) $140 million to $150 million in digital ads last year (ADDING: And I should say, some significant part of this is surely from upsells to people who only really want print ads. In other words, without the print paper, they’d surely be considerably less). That’s a great number—the news media group grew ads at an 18 percent clip last year—but it’s still a long way from covering a newsroom that costs upward of $200 million a year, much less the overhead needed to support that newsroom. And it’s only about $4.66 for each of its 30 million or so unique visitors.
Even if it were unmoored from the print paper, the NYT, would still have huge costs in the form of its massive newsroom. That means if viewed in isolation, its website is very unprofitable. It has to get much more revenue for each of its users to be a viable standalone business.
So you can’t apply The Huffington Post’s valuation multiple to the NYT’s website. They’re two different business models: Even though the HuffPo gets much less revenue per user, it’s apparently slightly profitable. Its costs are extremely low. It goes without saying but you’re going to get a much higher sales multiple on a company if its profitable.
The good news is that a quality paper like The New York Times does get quite a bit more per reader online than something like The Huffington Post (which is, uh, uneven). The bad news is: It’s not near enough—yet.
Such is the demise of blogging. tsk tsk. It always helps a writer's credibility when he starts off with the basic facts. And Mr. Filloux is full of crap on a number of levels. You quickly dispatched the revenue side of it, but the whole thing is so full of exaggerations and mistaken assumptions that it isn't even worth a link. To wit:
About 35% of the HuffPo’s users come form Google.
This was also a complaint, equally fact-free and hysterical, by Tim Rutten the other day. Like, so what? What does that prove? Politico is successful and about 35% of their readers come over from Drudge. Why is it so undesirable to be high up in a Google search? In fact, it has turned out to be so profitable that the NYT had a nice article this weekend on the various "Arts" of google searches -- "White" vs. "Black." Retailers luvluvluv to be high up in a google search. In fact, they pay good money for that. Why not a media company? Do-uhhhh. That's pretty much what google is all about.
They land on cleverly optimized content: stories borrowed from other (and consenting) medias that mostly generate blogging and comments.
In fact, both Jason Linkins and Nate Silver had some nice pieces this weekend on the Huffington Post business model. Here is their masthead: Huffington Post. The list you see there is PAID staff. In addition, HuffPo pays for AP and Reuters content. And also, they have partnered with the likes of Time Mag and Yahoo to share content. And according to Linkins' piece, they get a lot of requests to run linked content from many of the Big Media.
And please read Nate Silver's (and Arianna's) piece about what actually generates most of the page views and comments -- it ain't the blogging.
I'm not even a big fan of HuffPo and am not a regular reader. But I, at least, could describe it's contents and structure in factual terms, which is more than this clown Filloux can do. It used to be that blogging was supposedly "self-correcting." Whatever happened to that?
#1 Posted by James, CJR on Mon 14 Feb 2011 at 06:56 PM
"The good news is that a quality paper like The New York Times ..."
LOL! Good one!
#2 Posted by Dan A., CJR on Mon 14 Feb 2011 at 08:01 PM
I think they other piece HuffPo is doing right is applying social data to make their readers more valuable than they otherwise might be. HuffPo talks about how social advertising is where the majority of their revenue growth is coming from, and it's what advertisers desire. You can read more on Mashable.
#3 Posted by Liza Hausman, CJR on Mon 14 Feb 2011 at 08:24 PM
And by the way, that $4.66 per person per year figure is fascinating. How much was that -- revenue dollars from advertising per subscriber per year -- back in the day before the internets when the newspaper publishing industry was rolling in dough? Roughly estimating a million subscribers for the 200 million dollars to finance the cost of the newsroom, around $200 per person per year? And now they are delivering 30 million pairs of eyeballs to their advertisers instead of one million (say)?
I have always contended that the newspapers' real problem was that they are not charging enough for their internet ads, and that was their major problem. After all, flashy ads slow down the site, irritate readers, and take up good, valuable real estate, and there ought to be a cost to that higher than four bucks per year for a site like the New York Times.
Anybody know?
#4 Posted by James, CJR on Mon 14 Feb 2011 at 09:42 PM
The fact that HuffPo gets 35% of its traffic from Google is a good thing for AOL - they may have offered an even higher value had that number been 60-70%. Why? Because they want that traffic. Regular visitors don't click ads at anywhere near the same rate as new visitors. The people who come to the site to comment on blogs? They'll have a very low click rate.
Ms. Huffington managed to do two things that worked well together - she managed to get celebrities and some quality writers on board, early, creating buzz and links. And she leveraged that attention and the links in two ways, first by adding lots of content (with, it seems, scant respect for copyright and quality copywriting) to give regular visitors more places to go - and to develop a following that may not be much more interested in celebrity gossip than a Robert Reich column - and second by leveraging the "link juice", a SEO term for the authority that search engines give to links, to build the algorithmic "authority" of her site such that it ranked well through such interfaces as Google Search and Google News.
I don't know that the model is sustainable - Google really does need to improve its ability to discern low-quality content from quality content - but it's working right now. As we seem to be experiencing Bubble 2.0 for Web 2.0, if you want to acquire a site that's working right now you pay a premium. If you want to acquire a site that may be at the top of the game two years from now, well, it may not even exist yet.
AOL's track record for managing companies it acquires is abysmal. Netscape, the Open Directory, etc., and dare I mention Time-Warner - one might joke that it's where vibrant web projects go to die. I suspect that the outsourcing to Huffington reflects an awareness of the deficiencies of AOL's corporate culture. If all AOL intends to do via Huffington is keyword-stuff its articles so that they perform better in search engines, I don't expect this project to have long-term success. But in the online world, nothing is guaranteed long-term success and, for all I know, Ms. Huffington has a few tricks up her sleeve.
#5 Posted by Aaron, CJR on Tue 15 Feb 2011 at 10:07 AM
Without the free bloggers producing copy every day, HuffPo would fold in a week -- actually, in a day. A couple of re-writers (if not copy thieves) with wire service dispatches can't keep this machine alive. So why use "model" in the same sentence with "Huffington Post"? As the internet matures, this "content is free" scheme will die. And it looks like, again, AOL will be holding the empty bag.
#6 Posted by Stewart Nusbaumer, CJR on Wed 16 Feb 2011 at 02:16 PM