The Evening Standard heads toward profit: What does this suggest to loss-making competitors?

Interesting to watch Geordie Greig at Friday’s Value Of Journalism conference, organised by Polis and the BBC College of Journalism. (There’s streaming video of his talk here: you’ll need to poke around a bit to find it, though).

Greig seemed tired but spoke well. He was particularly open about the Evening Standard’s economics since the paper was acquired by Alexander Lebedev in early 2009.

Here are my notes, supplemented with some ABC data on the Standard’s current circulation:

The Evening Standard: Pre-acquisition & paid-for

– Circulation (cover price) revenue, annually: £12m

– 140,000 paid-for circulation, falling by 10%-20% per annum

– Total circulation of 300,000 including bulks

– 8,000 distribution outlets

– Distribution costs: 30p per copy per reader (out of 50p cover price)

The Evening Standard: Post-acquisition & free

– Circulation (cover price) revenue, annually: £0m

– 609,000 free circulation

– NRS readership (six months to March 2010): 1.35m

– 300 distribution outlets

– Distribution costs: 4p per copy

Under DMGT, the paid-for Standard reputedly lost more than £10m a year. For Grieg and Lebedev, taking the Standard free came with risks. How much more would advertisers pay in absolute terms to reach a lot more readers? Would this be enough to compensate for lost circulation revenues and erase those losses?

Advertisers have responded well. Greig suggests that yields (per column cm) have risen by 60% since the Standard went free. Last week, the paper hit the £1m-a-week revenue barrier at which it starts to become a breakeven proposition.

The maths are interesting for anyone concerned about the relative value of free and paid-for readers.

The old Standard: Ad revenues (assumption) of £30m

Old circulation (ABC – May 2009): 185,000 (paid for)/115,000 (bulks)

Old readership (NRS April-September 2009): 556,000

Ad revenue per issue (/258) = £116,000

Ad revenue per paid-for circulated copy = 63p

Ad revenue per circulated copy (paid-for & free) = 38p

Ad revenue per reader of each copy = 20p

The new Standard: Ad revenues of £30m + 60% = £48m

New circulation: (ABC – April 2010): 609,000

New readership (NRS October 2009-March 2010): 1.35m

Ad revenue per issue (/ by 258) = £186,000

Ad revenue per circulated copy = 31p

Ad revenue per reader of each copy = 14p

The old saw is that advertisers don’t value ‘free’readers anything like as highly as readers who pay for their news.

It’s true they don’t. But how big is the discount? The old Standard probably wrung 63p from advertisers for the privilege of reaching one paying reader on one evening of the week. The new, free, Standard, probably manages 31p per circulated free copy.

Yet when the Standard went free, it quadrupled its circulation. It also cut huge amounts of cost out of the system. The old Standard cost 30p a copy to distribute, while the news Standard costs 4p a copy.

The Lebedev Standard isn’t out of the woods yet. Breakeven remains a novelty. The ‘sunlit uplands of profit’are still ‘a long climb’away, added Greig. Cost management is still ‘very, very tight”.

For all of the disclaimers, I suspect that the free Standard is on its way to becoming a success. But this remains a curiously brittle kind of success. Going free cannot be reversed. It’s a bit like shooting the final round in your clip at pursuing villains. From then on, you’re at the mercy of events.

What happens when one of the villains fires their last shot, and begins to compete on the level? The experience of freesheet wars in London suggests that the ensuing losses can be large. Over the cycle, risk is exaggerated by steep increases and declines in the valua of advertising.

The Standard’s success relies on the assumption that no-one is sufficiently crazy (or courageous) to follow its example. The massive accumulated losses of London Lite and The London Paper should have warned publishers off for a generation. Yet if the Evening Standard starts to make profits consistently, that assumption could be tested.

Free isn’t a magic formula. It’s just another price point. Beneath it, the fundamental puzzle of overcapacity among the national press remains as real as ever.

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