The Huffington Post generated $146 million in revenue last year, according to a report in The New York Times Magazine. And yet the site failed to turn a profit, according to the story's author David Segal, who reports that it broke even.
That's a worrisome sign for digital-media startups, which, like The Huffington Post, rely almost entirely on digital advertising for revenue. The amount brands are willing to pay for digital display ads face constant downward pressure because there's a near limitless amount of supply.
So if The Huffington Post -- which is 10-years-old, hauls in more than 200 million unique visitors a month and cranks out roughly 1,200 posts daily on the backs of reportedly poorly paid or unpaid writers -- can't turn a profit on $146 million in revenue, then how are the other, venture-capital fueled sites with smaller audiences and fewer relationships with advertisers supposed to achieve profitability?
Video? Native advertising? E-commerce? Tech? Events? Downsizing? Some combination of all them? Or maybe their goal is simply to show revenue in the hope of attracting a deep-pocketed buyer.
According to Mr. Segal, The Huffington Post's answer to the profitability question is scale:
"Any difficulty turning a profit … is considered a temporary problem that will eventually be fixed by the sheer size of the readership."
Perhaps. But one thing to remember about digital-media startups is they've disrupted the way people consume content and, to some extent, how they make some of their money: by creating, for instance, in-house creative departments to produce ads for clients. But these site continue to rely on one-half of old-media's fount of revenue: advertising. The other half, subscriptions, is mostly non-existent.
This notion caught the attention of Raju Narisetti, senior VP of strategy at News Corp. In January, I interviewed him for a story examining the business prospects of six digital-media startups. His comments didn't make the final edit for Ad Age's print issue, but they're worth mentioning here.
Mr. Narisetti said of digital-only publishers:
"The entire business model is based on advertising -- just because you're born in the digital era and you don't have legacy print costs doesn't mean you're going to go against the larger ad trends: CPMs continue to fall because supply is infinite and becoming more and more infinite. So I worry about models that are simply following legacy media and saying we're nimbler and cost less but we'll make money in the same way you guys make money, when it seems like the ad model is constantly going away from us."