SeattlePI.Com, starting up from behind
Crisp and rapid execution, including an aggressive sales effort abetted by an uptick in the economy, will be required to enable SeattlePI.Com to reach its full potential. At best, that would seem to be about $7 million a year in sales, according to the projection detailed below.
Because initial sales will be nowhere near that theoretical number, the Hearst Corp. almost certainly will face multimillion-dollar losses in the early days of an experiment being monitored by publishers eager to learn if life after print will be worth living.
There are too many variables to try to guess how deep the losses might run at the P-I or how long it would take to overcome them. So, we won’t try.
But we do know Hearst has elected to limit its exposure by staffing the site with 20 journalists and 20 advertising sales people who probably represent a total of $4 million a year in operating expenses. In the unlikely event the site generated zero sales, the maximum potential hit of $4 million would be better than the $14 million the company lost on publishing the print product in 2008.
The new site is being watched widely in the newspaper industry because it represents the first major metro to go paperless. Publishers thinking about trimming or eliminating their print production schedules will want to see the sort of audience and advertising the P-I attracts.
As valuable as feedback from the Seattle experiment will be, it is worth noting that it is a decidedly atypical situation.
Because the P-I is exiting from a joint operating agreement managed by the Seattle Times, it is starting its newly single life without an ongoing classified advertising business.
With the Times in possession of the existing classified business, the P-I hastily affiliated with Kaango for free ads, Kelley Blue Book for cars and HotJobs for employment. There is nothing more than a link to Zillow on the real estate tab of its site. These relationships suggest few P-I visitors actually are placing or consulting many classified ads.
Classified advertising matters because it historically generated a significant portion of newspaper web sales. Given the collapse in the three primary classified verticals in recent years, this disadvantage may be less disadvantageous than it would have been in an earlier era.
A far bigger issue is that the P-I is starting with no ad sales operation, because the newspaper agency handled ad sales for the P-I prior to shutdown of the print paper last week. Hearst is in the process of hiring a sales staff.
Meantime, the site is heavily populated with the cheap banner ads that publications run in lieu of empty space, including pitches from a Google AdSense wannabe called Pulse360 that features tummy tighteners, teeth whiteners and colon cleansers.
It also is not clear the P-I is starting with all the web traffic to which it otherwise might be entitled. Because the Seattle JOA operated an umbrella website for both papers called NWSource.Com, it is entirely possible that some readers over the years became accustomed to going to NWSource and then clicking through to the P-I. If you go NWSource today, there is no route to the P-I.
Add these factors together and it is clear that the P-I is beginning life as more of a struggling start-up than a typical, standalone newspaper would be.
In trying to assess the potential of the business under these circumstances, the toughest part is figuring out the size of its audience.
Until the “About Us” page on the P-I site was removed last week, the publisher claimed 4 million unique visitors per month, a figure that is impossible to believe because it represents more than twice the adult population of the Seattle-Bellevue-Everett metropolitan area. Nielsen Online credited the site with 1.8 million unique visitors last month, but even this figure is hard to swallow because it is equal to the entire adult population of the metro area.
By contrast, SeattlePI.Com barely registered a pulse prior to the shutdown of the print paper on such popular online traffic-measuring services as Alexa, Compete and Quantcast.
So, I asked Greg Harmon of Belden Interactive, a marketing research service specializing in newspapers, to give me a realistic estimate of the potential audience for the new P-I. Here’s the result:
After studying the web traffic at hundreds of newspaper sites for years, Harmon says he generally has found that a paper will attract about 20% of the adults in its market. Out-of-market visitors, he says, boost the traffic of a typical site by 30% beyond the local audience. In the case of Seattle, this translates into potential traffic of about 732,000 visitors per month.
As the second paper in a two-paper town whose identity is confused by the former NWSource.com affiliation, Harmon says the 20% figure likely would be the best imaginable share of the local market for the P-I.
Harmon says the typical visitor at a metro site generates an average of 26.5 page views per month, which would put what he calls the “best-case” potential for the P-I at a bit less than 19.5 million views per month.
Assuming each of three ad positions on every page were sold at an average net rate of $10 per thousand visits per ad, annual revenue would come to a bit less than $7 million. (Classified advertising was not taken into consideration because its immediate contribution would be insignificant.)
If the expense of operating the site were $4 million, then Hearst would reap a profit of $3 million if the site achieved its full revenue potential. But the revenue number is distinctly theoretical.
Although the above analysis assumes every available ad will be sold, this seldom happens in real life – especially during the sort of difficult economic times we are experiencing today. The true percentage of the inventory likely to be sold will depend on the success of the P-I’s audience-building effort, its sales force and the future health of the economy.
Suggesting that scant time was allocated to planning the site before the presses were stopped in perpetuity, the P-I had a less than auspicious launch from an editorial point of view. It remains to be seen whether the comparatively small staff running the site can come up with an effective formula for efficiently producing compelling and viral content.
The average $10 ad rate may prove to be too generous because of the enormous amount of unsold advertising inventory all over the web. Online ad rates dropped by almost half last year as the result of the glut of unsold inventory, according to Pubmatic.Com, a company that specializes in online ad placements.
Pubmatic reported that the average cost per thousand for the sort of backfill banner ads appearing at the P-I was less than 40 cents in the final quarter of 2008. Once the P-I organizes its own, dedicated sales force, it should be able to do better than that.
Other Hearst newspapers have been having considerable success selling targeted advertising on Yahoo as members of the consortium of nearly 800 publishers who have partnered with the web portal. Assuming the P-I participates in the program, its share of those sales will help to enrich its revenue stream.
If traffic, ad volume and ad rates fulfill or surpass the above estimates, then Hearst would move from losing $14 million a year in Seattle to making a respectable, but modest, annual profit of a few million dollars.
If the economy doesn’t cooperate or the citizens and merchants of Seattle fail to embrace the site, the publisher will be faced with the choices of trimming the staff, funding another hefty operating loss or shutting down the experiment that many observers hope will show the way to the future.