The Fuzzy Math of Big Media's Digital Revenue

Despite Different Counting Methods, It Comes to $500 Million

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NEW YORK (AdAge.com) -- If you think upfront math is fuzzy, try asking the major media companies for a little sharper focus on how digital ad revenue is shaping up for this year and beyond.
The issue of digital revenue is one of keen interest to analysts watching mainstream media companies but each of the companies uses different methods to categorize its digital activities. | ALSO: Comment on this article in the 'Your Opinion' box below.
The issue of digital revenue is one of keen interest to analysts watching mainstream media companies but each of the companies uses different methods to categorize its digital activities. | ALSO: Comment on this article in the 'Your Opinion' box below.

Earnings calls
It's the No. 1 parlor game played quarterly on earnings calls by analysts. While each of the main media companies defines digital slightly differently, everyone seems comfortable projecting the same revenue: about half a billion dollars.

While there's no doubt each of the networks has grounded that figure in reality, the problem for analysts is figuring out what is being counted as digital revenue. Is it video advertising? ITunes-download fees? Banner ads? Social-networking sites? Wireless? Online sales of ringtones and Bill O'Reilly coffee mugs? All are thrown onto the same line, leaving observers to wonder just which parts of the business are growing the fastest.

NBC Universal
Speaking in September, NBC Universal Chairman Bob Wright threw out that expected digital ad revenue for 2006 would be between $400 million and $500 million. The only problem for analysts is it's unclear how that breaks down among newly acquired iVillage, NBCOlympics.com and NBC Universal's own broadcast and cable websites. An NBC Universal spokeswoman said last week that digital revenue for 2006 will be $400 million, derived from online ad sales, download businesses such as iTunes and wireless revenue. The company does not break out digital advertising sales.

News Corp., Viacom and Walt Disney Co. also like the sound of half a billion. News Corp. Chief Operating Officer Peter Chernin told analysts this month that Fox Interactive Media, which counts MySpace, AmericanIdol.com and FoxNews.com among its assets, would do $500 million in revenue for the year.

"We're not breaking down profit targets for Fox Interactive Media," he told the Street. But News Corp. executives suggest the majority of that $500 million is derived from ad sales rather than online orders for O'Reilly mugs. How much is the result of adding MySpace? That's still unclear, as is the long-term financial viability of the whole social-networking phenomenon.

'Fast-growing business'
At Viacom, meanwhile, new President-CEO Philippe Dauman confidently predicted digital-ad sales would increase at high double-digit growth rates on a call in early November. "I believe there's a good chance we could reach $500 million in annual digital sales by as early as next year," he said, most of that from ad sales.

Thomas Weisel Partners, the San Francisco merchant bank that tracks U.S. online-ad spending, pegged Viacom's online-ad forecast at $160 million for all of 2006 and $257 million in 2007 in a report dated October.

Disney, which wrapped its fiscal year in September, went one better on its conference call in the same week, when CFO Thomas Staggs, said: "We believe that our internet and download revenues could total approximately $700 million in fiscal 2007."

Disney's itemized list
When asked how 2006 stacked up, a company spokesman said the figure was, well, you guessed it: $500 million. A company spokesman gave some greater detail, however, explaining that the figure was split evenly among paid commerce, paid content and advertising. That would mean digital-ad sales were around $160 million.

When asked why $500 million is so popular among media companies, a Disney Co. spokesman said: "We have a rigorous finance department that is highly skilled at what they do. What you're seeing here is a fast-growing business."

If Disney lumped in its theme-park reservations, the spokesman pointed out, the figure would leap to $1 billion. Playing it more cautiously, but not much, is CBS. President-CEO Leslie Moonves told analysts: "You guys are always asking us when we're going to start making money here [in the digital space]. While it is still too soon to quantify the impact, I can tell you we expect to generate hundreds of millions in digital revenues in '07."

Whatever the precise digital-ad-sales bookings at each of the major media companies, the potential online windfall always looks huge.

IAB report
The Interactive Advertising Bureau last week reported internet-ad revenue for the third quarter at $4.1 billion. For all of 2006, it's around $16 billion. But when you subtract search-a game none of the major media companies are in-the number looks slightly smaller.

According to Thomas Weisel's data on U.S. advertising revenue, Google alone takes $3.9 billion, Yahoo gets $2.8 billion, eBay nabs 1.4 billion, AOL takes in $1.2 billion and MSN claims $1.1 billion. That accounts for $10.4 billion, leaving $6 billion to be split among all remaining players in the online space.

How will media buyers divide up their clients' media budgets in 2007? Last week, the American Advertising Federation published a survey detailing those splits. Search again accounted for the most spending, a full 27% of next year's media budgets. The next-largest slice went to online video at 14.9%, followed by blogs at 8.4%, podcasts at 8% and social networking with 7.7%. At the bottom of the list were RSS feeds (5.5%), mobile (5.2%) and video games (3.6%).

Underscoring just how rapidly broadcast and cable companies need to migrate their content online, 33% of respondents -- who included advertisers, media companies and agencies as well as academics -- said between 10% and 19% of TV budgets were set to move to online video by 2010.
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