Why are digital ads growing so slowly at The Economist?

The Economist Group stands out like a sore thumb among the struggling hulks of Big Media. Perhaps that’s not surprising: this is a B2B business that just happens to occupy a prime position on most newsstands.

The Group’s interim results for the six months to 30 September were released this morning. The contrast with consumer-facing media owners couldn’t be starker.

Operating profit for the six months to 30 September is up by 25% to £20.8m. This is on the back of turnover that rose by a mere 4% to £124.6m.

Where did all that margin-rich cash come from? Increased digital ad revenue, so we’re told — as well as a strong performance by the Economist Intelligence Unit.

Fairly clearly, the EIU is cutting a swathe through its market. Custom research is up by 36% in revenue terms. Events — conferences actually — rose by 11%.

The Economist Group doesn’t separate out magazine revenues from those generated by the EIU. So it’s impossible to zero in upon the magazine’s commercial performance.

But the combination of the two, dubbed “the Economist brand family” in the interim accounts, brought in £100m during the six months to 30 September — and generated a robust 15% operating margin.

Oh, and traffic to Economist.com increased by 39% YOY.

This is interesting — not least because digital ad revenues at the magazine are only growing by 15% YOY. (This figure comes from Paid Content, which read the Economist’s earnings release.)

Were its other bits not doing so well, The Economist Group would be under serious pressure to fix what looks like an underperforming online sales operation.

Of course, there’s still plenty of life in the Economist’s print edition. US circulation is up by 17% to almost 700,000. The magazine global circulation as a whole leapt by 11% to 1.26m.

All well and good. The main question going forward is how aggressively the credit crunch will dent the group’s performance between now and next March.

The magazine should (mostly) rise above it all: indeed, there’s an argument for its editorial becoming more keenly read as the markets lurch deeper into crisis. But this is still a company with plenty of exposure to the US market.

As for research and events — all of that thick-margin EIU activity — the jury’s out. A good portion of the EIU’s revenues presumably comes from the bankers wearing red braces. And there’s the CFO “brand family” to worry about too. In the US, the print edition of CFO is starting to look problematic.

Will a consumer slowdown turn into a B2B bust as well? That’s one of the bigger questions on the horizon at the moment.

The Economist Group is a bellwether B2B publishing business. Its full year results — due out in June next year — will tell us the worst.

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