Posted by: Matt Shanahan
This media announcement published by Fairfax Media breaks out each division in terms of revenues, expenses, and profits. Their online segment had revenues, expenses, and EBITDA profit in FY2010 of $212.4 (A$), $101.4 (A$), and $111.0 (A$) respectively. The online segment had a very respectable gross profit margin of 52.3%. I was curious both about their breakeven ARPU and what was driving their margin.
Figuring out the breakeven point on ARPU turned out to be relatively easy. The online business segment is the combination of Fairfax Digital and Trade Me businesses. From information on both sites, Fairfax Digital is an aggregation of 30+ websites with 8M uniques/month, and Trade Me is essentially 1 site with 6.8M uniques/month. Breakeven ARPU for online at Fairfax is $6.85 (A$) or with today’s exchange rate $6.35 (US$). Their actual ARPU is $14.35 (A$) or $13.29 (US$).
The $6.35 ARPU for breakeven is below the $10 benchmark that we typically see for most media groups. From further digging, there are some clues as to why that is. Trade Me is essentially an auction and classified advertising site. The revenue derived from the site in transactional in nature rather than impression (note: there is display advertising but the real money comes from the transactions). Additionally, the 30+ Fairfax Digital properties includes a number of classified advertising properties from jobs to cars. Finally, there is a clue in the following quote from the strategy section of the FY2010 earnings announcement “We will continue to capitalise on the quality and size of our online news audiences to create new revenue streams. In particular, we will continue to invest in online transactional businesses and short-form video to benefit from the rapid growth in that segment.” Summary: transactional page views provide more margin that display advertising impressions for Fairfax Media. That’s how they outperform the benchmark. Another benefit of the model is that transactional page views can scale from network effect much better than generating display advertising inventory with editorial (i.e., higher expense creating display advertising inventory usually from labor costs).
From a distance, Fairfax Media appears to think about ARPU more broadly by bringing the transactional element into their ARPU equation. They look to build revenues not on media impressions but by delivering additional services that create a whole product for their audience.