The Assumptions Behind Our Models

Posted on 17. Aug, 2009 by Matthew Sollars in Hyperlocal, New News Organization, News Ecosystem, Not-For-Profit, Revenue

Some points about the assumptions baked into our models:

We settled on a $12 cpm as a conservative benchmark, based on feedback from a number of news organizations, large and small. Indeed, we commonly heard a range of $15 to $20 cpm. In terms of for-profit startups that replicate what we are calling the New News Organization, San Diego News Network is charging between $8-$10 cpm right now and they anticipate the rate will go higher once the economy recovers. For smaller startups and hyperlocals, we calculated a cpm from the time-based advertising rates. Here is a list of the folks who participated in our survey. Hopefully running through these two lists will answer some of your questions about where our numbers come from. Bottomline, we have data from a lot of sites that have been aggregated into the models.

Paul Bradshaw of the Online Journalism Blog asks why the development costs for our Not-for-Profit model is not higher in the first year? We have on-staff developers built into our New News Organization and Not-for-Profit models, in addition to the development line item in the budget. So, yes, we anticipate that future businesses will continuously spend to update themselves. Perhaps we haven’t factored in enough of a front-end development cost.

Bradshaw also questions one of our conclusions, that this new news organization can actually be as profitable as we postulate. He writes on Online Journalism blog:

Also, I’m somewhat baffled by the projected margins of 29% by year 3 – those are the sorts of margins news organizations enjoyed during the ‘print bubble’© and led to the sort of debts and shareholders that have been just as problematic as advertisers.

It’s important to separate profit margins from revenues. The news organization we envision is much smaller, with $20 million in annual revenues, compared to the hundreds of millions in revenues enjoyed by print newspapers today. Of course, the new organization’s costs are smaller, too, hence the profit margins. That means those margins don’t require the huge capital investments made by newspapers in the past. The new online news organization will necessarily be more agile and flexible.

A point for some of those folks who think our assumptions are overly optimistic. Our goal was to project what happens when the daily newspaper in a large city has gone away. That’s the context for our numbers: what will advertisers do when they need to go to an online-only publication? In all of these cases, we are testing hypothetical models. That’s why we’ve posted the spreadsheets online. We’re asking you to put in your own assumptions and share them with us, please put your versions in the comments. (The New Business Models for News Project has been funded by the Knight Foundation.)

Tags: Knight Foundation, NNO, Paul Bradshaw, Revenues