The Yahoo consortium could give newspapers a boost into positive revenue territory a year earlier than originally expected, Deutsche Bank analyst Paul Ginocchio and his team, David Clark and Matt Chesler, estimate.
Since seven newspaper companies announced an alliance with Yahoo in November 2006, another 17 companies and about 400 newspapers have joined, all of which could see online revenues grow year-on-year by 20 points in the second half of 2008, from 20 percent to 40 percent, the analysts reported, according to Editor & Publisher.
At this rate, all involved in the deal could see the move into positive revenue territory as early as 2009, according to the research report.
“We believe the benefits from the Yahoo deal could move the revenue and EBITDA inflection points forward, positively surprising the market,” the analysts wrote, according to a report by E&P.
The analysts believe the partnership means more online inventory and traffic, as well as better CPMs (cost per thousand impressions), thanks to Yahoo's behavioural targeting capabilities and the HotJobs affiliation, E&P reported.
For example, since newspaper publishing group Lee Enterprises launched recruitment sites it co-branded with HotJobs in February 2007, online revenue through July jumped 62 percent on average, compared to an average of 49 percent from June 2006 through February 2007, the analysts point out. Along with display advertising, some alliance members could see growth rates online of 40 percent that could last at least two years, starting in 2008, according to the E&P report on the analysts' findings.
However, no deal is not without risks. The Deutsche Bank team came up with three possible scenarios for alliance members, using 2006 as the base year:
1) Online revenues will continue its climb at a rate of about 25 percent, because the deal with Yahoo either helps, but is not enough to overcome print losses, or because Yahoo doesn't increase revenue enough. In this case, total newspaper revenue and EBITDA won't climb into the positive range until 2012.
2) Online revenues increase about 40 percent beginning in the second half of 2008 before dropping back to a growth rate of 25 percent in 2012. A surge is expected as newspapers add more Yahoo features, and total newspaper revenue and EBITDA will rising beginning in 2010.
3) Online revenues increase 40 percent in 2008, 50 percent in 2009 and 50 percent in 2010 before dropping back to a 25 percent growth rate by 2011. Total revenue and EBITA will move into positive revenue territory by 2009.
The most likely outcome, the analysts believe, is that total revenue will go on the upswing by 2010, “about a year to year and a half earlier than we previously expected,” they wrote, according to E&P. “However, if we are underestimating the traffic boost the newspapers will get from Yahoo ... this inflection point could be even closer than we think.”
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