Over the past few weeks, I have been looking at ARPU in isolation.  In the upcoming posts, I will examine its composition and its relation to other metrics.

Revenue Per Mille (RPM) is the average revenue generated per 1,000 page views.  Cost Per Mille (CPM) is the average cost of per 1,000 impressions.  Both metrics are commonly used by publishers to describe their business, but rarely do they discuss them together.  For example in the Demand Media S1, they discuss an $11.81 RPM for their owned and operated websites such as eHow.com, but there is no reference to CPM.   Yet there is a lot to be learned by comparing input (CPM) and output (RPM).

RPM is basically the “pay”load from ads served up with a page view or the sum of the CPMs associated with the page view.  When RPM is significantly greater than CPM, it means there are a lot of ads per page (i.e., an “ad” farm).  When RPM equals CPM, it means basically 1 ad served per page view (i.e., premium property).   Note: This is over simplification given different ad units and different types of pages, but when averaged over an entire site it is pretty close.

So what does it mean when RPM = CPM?  For a visitor, RPM = CPM translates into fewer ads cluttering up the content.  For an advertiser, RPM = CPM translates into less competition for the visitor’s attention.  For a publisher, RPM = CPM translates into an ability to create better quality content and ad units.

Taken a step further if ARPU = CPM = RPM, it means the average visitor views 1,000 pages in a year or about 19.2 views per week.  In this scenario, the visitor gains value from the site; the advertiser can establish brand awareness overtime; and the publisher has a predictable model.  Everybody wins.

Getting to an everybody wins scenario is critical to publisher sustainability.  Only a few publishers will deliver a blockbuster number of pages views, oversubscribe buys on their ad inventory, and pepper their audience with ads, ads, ads.  The vast majority of publishers will be face limitations on page views and audience size.  Creating the right balance between ARPU, CPM, and RPM will be important.

In an interview with Robert Andrews of paidContent last week, I reflected on findings from our research on publishing business models.  One observation in particular piqued Robert’s interest.  From client engagements as well as reading 10Q’s, S1’s, conference presentations, and press releases, it appears a $10 ARPU is a turning point for most digital-only business models into viability. 

As I am always on the hunt for publically-available information to crunch, Ken Doctor’s recent blog posting on the Texas Tribune prompted me to dig deeper into the their business model.  From a quick search through Google, a case example of the Texas Tribune was found in the summary report for “Seeking Sustainability: Nonprofit News Roundtable.”   In the case example, John Thornton, chairman, Texas Tribune indicated the operating budget of $2.3M.  From Ken’s post, the current number of uniques, 240,000.  Therefore:  

$2.3M/240,000 uniques = $9.58 ARPU (or about $10)

What is illustrative about the Texas Tribune case example is not having to rely on RPM to survive as a publisher.  More on that thread in the next post.

In my previous post, I was shocked by the revenue per reader for People Magazine ($408 revenue/visitor/year).  That revenue production is fantastic.  With the recent announcement of the Demand Media S1 filing, I thought it would be interesting to see where their model would have to get in order to produce the same revenue at their rate of $1.60 revenue/visitor/year.  The answer is over 918M uniques (3.6M*408/1.6).

 The publisher’s challenge of preserving at least the profit per reader in the changing media landscape is daunting, so it is interesting to watch particular strategies.  Take People Magazine as an example.

People Magazine in 2009 had a $408 Revenue Per Reader in their print business.  It came from nearly $1B in ad sales, $284M in one-time sales, and $235M in subscriptions with an average weekly distribution of 3.6M readers. 

This week, People Magazine announced that it print subscribers will receive bundled access to their digital edition on iPads.  The bundling of their print and digital offerings will assist in migrating $1.48B revenue stream from one channel to another one.  People Magazine made what looks like a smart move for several reasons.

First, by bundling the offerings, they can create loyalty with their existing subscribers by giving them new value in the form of digital access.  Increase loyalty reduces churn and preserves the revenue stream.

Second, by bundling the offerings, they can encourage buyers of the more expensive single copy digital version to purchase the print edition and get the iPad version for free.  Essentially, they increase circulation by using the digital single copy as a marketing promotion.  The move helps bolster the existing ad revenue in print which remains the most lucrative.

Third, by bundling the offerings, they can migrate their audience to a 100% digital channel when the engagement metrics reach the right level and the ad units produce the right revenue.  Will it ultimately be a $408 RPV?  Who knows but bundling seems like a good approach to migrating their audience and revenue.

Any publisher faces price limits on what they can charge advertisers for impressions and/or visitors for access.  Each of these revenue streams is also limited by the maximum potential size of their audience.  Part of my investigation into RPV, is to understand how RPV affects business decisions.

Between their investor fact sheet and press releases, TheStreet.com provides good insight into their business model.  The content provides information about uniques, breakdown of revenue, expenses, and more.  So it seemed perfect to delve into the question about revenue per visitor (RPV) versus number of unique visitors (uniques) to achieve profitability.

As of the close of Q2 2010, the 6-month revenue for TheStreet.com was $28.1M generated from an audience of 4.1M monthly uniques.  During that time, their operating expenses were $28.9M comprised of “cost of services,” “sales & marketing,” and “general & administrative.”
The business model is running about breakeven.  At the current run-rate, their RPV is $13.70/visitor/year.  The RPV composition is 69% premium services (subscription) and 31% marketing services (ads). 

So is it viable for TheStreet.com to be breakeven on 100% ad revenue?

If TheStreet.com had tried to be 100% ad revenue, they would have required an additional $19.5M in ad revenue to breakeven.  Given that 4.1M audience members generated $8.6M in ad revenue (i.e., $4.20 ad RPV), breakeven would require an incremental 9.3M audience members at the existing CPM.  So the basic answer is 13.4M uniques would be required.  However, 13.4M uniques is not likely to be enough. 

In their investor fact sheet, TheStreet.com points out that they are able to garner premium CPMs because of the quality of their audience.  Assuming 20% price erosion on the CPM in a 100% ad revenue model, the total audience size would need to be 16.1M (1.2 * (4.1M+9.3M)).

So a key decision in going to a 100% ad revenue would be whether the 16.1M audience size is achievable and sustainable.  What is the demographic that makes up 16.1M uniques?  What percentage of the total population does 16.1M represent?  What competition will the publisher be facing for those individuals?  What percentage can the publisher win?  Is it better to segment down and focus on a niche with a higher RPV?

Of note, I have not found any publishers achieving profitability under $5 RPV, but I am still looking.

The New York Times article about upcoming mobile magazine Nomad Editions has a reasonably detailed description of the proposed business model.  Nomad Editions plans to charge $24/visitor/year as a subscription fee.  Additionally, Nomad Editions plans to generate revenue from advertising, but it appears to be a small portion compared to the revenue expected from subscriptions. 

The fee of $24/visitor/year provides access to a particular “edition”  (i.e., section on either food, movies, surfing, etc.).  Editors of an edition will take 5% of the revenue ($1.20/visitor/year) and writers will take 30% ($7.20/visitor/year) of the revenue.  This means that 65% of the revenue will go to development, operations, and profit or $15.60/visitor/year.  The article also states that a writer should be able to make between $50,000 and $60,000/year from an audience of 50,000 visitors.   

Each edition will be published weekly with 1-2 longer features and 4-5 shorter articles, or about 6 articles per week.  It is reasonable to think that the 6 articles/edition/week would take up to 6 writers/edition/week.  So does the projected $24/visitor/year cover the writers?

With those bottom up numbers, let’s see what it would be top down.  50,000 visitors at $24/visitor/year equates $1.2M/year.  The writers’ share of the revenue would be 30% of $1.2M or $360,000.  Splitting that up across 6 writers equates to $60,000/year/writer which matches the upper range quoted by Nomad Editions.  Editors would make $60,000/year/edition (their 5% share).  The remainder would go into development, operations, and profit.

$24/visitor/year = 6 writers for Nomand Editions in digital equilibrium.

According to Kara Swisher at All Things Digital, Demand Media could do as much as $230M in revenue this year off of 86M unique visitors (note: the 86M comes from the Demand Media S1).  Currently, 60% of the revenue comes from the content business and 40% from other sources (e.g., registrar business).  In that case, $138M comes from content, and the revenue per visitor per year is $1.60. 

Currently, Demand Media is projected to be unprofitable.