The economics of DMGT's investment and return from digital news

The brutal truth is that for all the evolution, revolution and on-going disruption in the mainstream media world, the biggest, oldest beasts in the jungle still make most of their money the exact same way they always have.

Newspaper Loading... industries newspaper s sell printed copies to readers and printed adverts to advertisers - despite the rise in online revenue that's still the main bread winner.

DMGT today announced in its interim management statement some interestingg figures showing how this is progressing, and in my opinion showing that for the Mail at least, online is the main new revenue source as print stays, at best, stable.

Print's slow, slow decline as revenue driver

-- Steady as she goes is the main message from DMGT, which is a diverse and international group owning regional, national newspapers here as well as B2B media assets all over Europe and the US.

-- CEO Martin Morgan was satisfied with a "solid start to the year" but warned against "continued external uncertainties, particularly for UK advertising." In the three months to January 1 the company made £495 million - only two percent higher than the year-ago figure.

-- B2B revenues are slowly growing at £224 million, a six percent underlying rise year on year, helped by some good data-led information brands and events

-- But over on the consumer side, it's a bit more hairy: A&N Media's £272 million of revenue was two percent down year on year, another 160 staff left the company in the quarter (the total workforce is now 6,710).

It's not crisis time for the Mail at all. But with advertising sliding slowly downwards it seems the only way the company can squeeze more revenue from print is through cutting costs and increasing cover prices. Such is the Mail's scale - an average circulation of 1.9 million seven days a week - a 5p price rise in July turns into a five percent increase in circulation revenue.

The Mail is hardly alone in doing this: look at how listed UK newspaper publisher share prices such as DMGT and Trinity have dropped compared to the FTSE100 index in the last decade... (click here for bigger view)

Then compare that to listed newspapers' coverprice rises price in the same period (first published by me at paidContent in 2009):

And here's a chart showing average UK daily newspaper coverprice rise against circulation fall - publishers dial up the price as fewer people buy at the newsstand.

Spot any correlation there? As times get tough it's the reader that pays more, with commercial managers far less reluctant to ask for more from advertisers. News International may have faith in paywalls but despite Murdoch's hopes, no other mainstream news publisher has followed him down the walled garden route.

The digital way out of this

With online, there is no such conflict between production costs, distribution chains and the longstanding, unbending commercial rules of print publishing.

By some measures the most popular news site in the world, Mail Online Loading... companies dailymailcouk reached 99 million unique users in January (citing internal Omniture stats), a 77 percent increase year on year, while at the same time revenue for the quarter rose 70 percent on the year-ago figure.

That revenue trend is accelerating too - in the year to October 2011 annual revenue growth was 65 percent. To put that in context, it may not yet be profitable on its own and many would argue that with that many readers it should be profitable but Mail Online is growing revenue at the same rate it's growing audience.

This is the where Associated's growth will come from as print advertising inevitably dips, along with its digital classified ad businesses. If it were not for the amount DMGT is investing in the US and India in growing the Mail Online, it would already be profitable and on the way to driving significant gains to Associated's bottom line.

It very much looks like Mail Online's decisions - such as having a separate staff dedicated to the site while others were preaching the value of integration, and being at the forefront of publishing innovation generally - are now paying off. Publishing many, many pictures of famous attractive women not wearing many clothes helps, too, of course, but that's not the full story.

The lesson here? Investment in online-only news and entertainment content does pay dividends within a legacy print business, but the returns are not immediate.