COMMENT: It was the question for which NZME’s chief executive Michael Boggs could not have an answer. Not publicly. Not on an investor and media conference call.

But the question came, nevertheless, from Australian analyst Roger Coleman on NZME’s plans to introduce a paywall on the website.

How much revenue would it raise?

He kindly supplied some context: “The standard being about $300 a year in Australia …. what percentage of the audience would be paying in two or three years’ time?”

Boggs’ answer was telling: “We see 4 to 6 percent of the audience has been converted [in Australia] and I think that’s a good benchmark to be targeting.”

The analyst did the numbers rapidly in his head. “Four to 6 percent of the two million monthly audience you have, that’s 120,000 and that’s $36 million in revenue.”

That is a tantalisingly high number, given the total subscriber revenue for the Herald and all the other NZME newspapers is currently just $41 million for six months, according to the company’s half yearly financial results made public yesterday.

Boggs couldn’t comment on that $36 million figure. He didn’t endorse it or laugh it off.

Instead he repeated the Australian experience had been a 4 to 6 percent take-up. “That’s the benchmark that has been set in Australia for us,” adding “It is not going to turn up on day one.”

The Herald‘s plan for a paywall for its Premium and In-Depth section on the website would be a media success if it pulled in a quarter of the analyst’s estimate of $36 million in its early phases. 

NZME has been asking readers in market research if they would be prepared to pay between $3 a week and $7 a week for premium content, including local stories and syndicated material from major overseas sources.

If Boggs’ 4-6 percent target is correct and you take the latest Nielsen July monthly unique audience for of 1,670,000 that would mean the company is targeting between 66,800 and 100,200 paying customers.

Now, to use the analyst’s formula that is, at $3 a week, between $10.4 million and $15.6 million a year.

At $7 a week those totals would be $24 million and (surprise) $36 million.

Given the Herald is looking at asking for payments for just one part of its website, not the whole offering as in much of the Australian media, it would be unlikely to be able to command $7 a week ($364 annually) or even $5 a week ($260). Even the $3 a week figure raising $10.4 million at the low end of estimates would be a big ask, especially as the results presentation talked of offering subscription bundles for the newspaper and premium paywall, indicating the premium charge might not be fully applied for all.

As Boggs said, all that money would not be available in year one. However if it could be attracted by year two or three that is a war chest to help fund the company’s operations as newspaper advertising and circulation revenues fall away.

The Herald began this week asking its website readers to re-register for email newsletters and for personalising their desired news. Boggs said there was an absolute commitment the premium paywall would be launched before the end of the year.

While its total Nielsen audience number for the website has sagged over the past year from nearly two million to that 1.67 million figure, the site has experienced a surge of 8.5 percent in the time spent by readers during their visits, indicating stronger engagement in the content. 

Investing in digital classifieds

For a company which saw its earnings before interest, tax and depreciation fall from $28.2 million to $23.2 million between the first half of 2017 and the first half of this year (down 18 percent) the paywall and its possible injection of revenue was one of two points of interest for analysts yesterday.

The other was NZME’s launch in March of three digital classified sites – Yudu (employment), OneRoof (homes) and Driven (cars). NZME is putting much store on such new revenue streams to offset the structural decline in its advertising markets.

Creating and running the new sites cost $3.1 million in the first half and while drawing in acceptable listings and audiences, had not yet raised big revenues. 

Boggs said the same sort of costs would be incurred in the second half of the year and the company hoped for solid revenue numbers by early next year but the project was an investment for growth and for the moment would remain a “drag on the business”. 

“Revenue from these businesses will be seen gradually over time and it will lag costs. While the medium-term opportunity for these platforms is appealing, the market is competitive and financial expectations in the initial phase of operation remain modest.”

To a question of how long the NZME board had allowed as a payback for the $6 million operating expenditure on the new sites (and about $5 million in capital), Boggs said: “We look at all these investments as requiring a very short-term payback. A two- to three-year payback is where we focus ….The board is very focused on us getting early wins and the milestones are, first, listings, then audience and then driving the revenue.

“There is no guarantee of spending for the next three years if appropriate milestones for these three factors are not hit. We are investing on performance.”

Coleman wanted to know just how low revenues were now, compared to the spending on the three sites.”Give us an idea of the jaws we are facing – is it [revenues] in the 100s of thousands, 200s?”

Boggs: “It is small numbers, like we said these numbers are coming in the last month or two.” He would not put a required revenue run-rate on the three sites to offset costs for this calendar year. “That’s not something I would look to focus on yet.”

Advertising down

The NZME half year results showed revenue from advertising across the company’s print businesses was down 8 percent (compared to a 20 percent fall for Stuff Ltd’s print titles, according to NZME’s interpretation of Stuff’s figures) from $60.2 million to $55.2 million. 

Its radio revenue was down from $50.4 million last year to $48.8 million – a 3 percent drop.

But its digital revenue was up 17 percent from $20.5 million to $23.9 million.

The results briefing used that last increase to boast digital gains had made up 70 percent of the print advertising losses for the period.

NZME blamed the combined company-wide advertising revenue decline of 4 percent on the drop in business confidence.

“Advertising bookings for [the third quarter] are consistent with the [first half] result, down 4 percent year on year,” it said. “Agency advertising spend remains challenged and softening economic conditions have the potential to weaken or delay advertising revenue in the [second half].”

While the company expected to repeat or better its cost-cutting of $3.4 million from the first half in the rest of the financial year, it warned this would not “be sufficient to offset the softening advertising revenue in the underlying business”.

Tim Murphy is co-editor of Newsroom. He writes about politics, Auckland, and media. Twitter: @tmurphynz

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