Outside.In is launching a new tool to make it easy to become a local newspaper. Is that smart? They convince AllThingsD to make it sound reasonable by sharing a spreadsheet. Great marketing! I thought the spreadsheet was super wrong, so I revised it: Google Doc Spreadsheet
Their original spreadsheet seemed wrong to me in a few respects:
- 40m pageviews is the average number of pageviews? That means they get as much traffic as the LA Times web site. Is that realistic? Here is a spreadsheet with pageviews by newspaper. This data is two years old, but very few get that many pageviews. Compete.com indicates that last month the Baltimore Sun got 3.5m unique visits. That means it is quite unlikely that they are anywhere near 40m page views. If an institution with a huge marketing vehicle, tons of marketing support, and city institutional status can’t get anywhere close, it is really, really hard.
- The network model is preposterous. First, they imagine that their sales force can build an ad network of 80m additional monthly impressions. Then, they can do a 50/50 rev share with these publishers and get all their inventory, even though they only have a 20% fill rate. Then, their sales force can sell it for $10 cpms. Is there really that much local inventory available? Seems like if it is, it is across a long tail, requiring substantial sales and publisher service to support and acquire. Next, is getting it at 50/50 realistic? I would expect a publisher would probably ask for more. Furthermore, if you only had a 20% fill rate, then the publisher would probably put you on a daisy chain and use networks themselves. Why share 50% of your revenue with this local entity if they are just collecting pass-through from Google or Advertising.com. Finally, can the sales force really expect to sell weakly branded network inventory for $10 cpms? I have found that sales forces accustomed to selling a premium brand struggle to sell network inventory due to the changes in the business model.
- Is the remnant monetization realistic? They claim to get $5.00. Certainly there are parts that are contextually effective and will see an aggregate page CPM of $5.00. Other inventory will go for $0.50. In fact, I would say that most inventory will go for $0.50.
Let’s just say that their model is not conservative. It seems pretty aggressive, actually. If you decrease all of these numbers just a little bit, the business is suddenly bankrupt.
Fred Wilson, an investor in Outside.in, says:
As you might imagine, it’s a “honey we shrunk the kids” story. The topline goes down by an order of magintude and so do the costs. The profits are still there (at least in theory). In Mark and Peter’s strawman model, a local media business with 40mm monthly page views does about $7mm in annual revenues and almost $3mm of pre-tax income. You can go click on that link in the above paragraph if you want to see the model.
And if that is true, and I think it is or will be, then the local media companies that leverage their audiences for their content, create communities and conversations, will win. And they’ll be profitable businesses worth owning and investing in.
Fred is an awesome VC – one of the best. There is not a chance he makes a single investment in a business like this. Even if things went their way, is investing in a business that, at scale, generates $3m profit really a business? Fred might invest in the roll-up of 300 of those companies.