Advertising sales revenue is the money publishers make from selling ‘space’ in their titles. Most publishers set aside printed pages or parts of printed pages for advertisers. The number of pages compared to the total number of pages in a public  is known in the business as the advertising ratio. Paid for publications have a lower advertising ratio than free publications.

Advertisements fall into two main categories:

• Display advertisements are larger and often more colourful – they can have highly creative text and images.
• Classified advertisements are smaller and often only text with a minimum of graphics.

Magazines typically sell display advertising by the page, although they offer double page spreads, half pages and other formats. Newspapers will sell pages, but they also sell column centimetres (or column inches). Classifieds sell as column centimetres, as lines of text or in some cases by the word.

The more you buy the cheaper it gets

As a rule, the more advertising an advertiser buys, the cheaper the rate per column centimetre (or page if they are buying magazine ads). So a full-page is cheaper than two half pages and so on.

Publishers also offer advertisers discounts if they commit to buying a series of advertising over a period such as a year or six months. So, booking a year’s worth of advertisements in a monthly magazine is cheaper than buying 12 single advertisements.

Some advertising positions attract a premium rate. On newspapers this would be the front page and maybe the front pages of the internal sections. Magazines typically charge extra for the back cover and possibly the inside front cover. Successful titles can also get away with charging a premium for early right hand pages or other attractive sites.

Agencies and commission

In some industry sectors, advertising is largely placed by specialist media buying companies who develop strategies for their clients and negotiate with publishers. These companies earn their income as a commission. Typically this is between 10 to 20 percent of the booking’s value.

In return for the commission, media buying agencies contract to pay their invoices by a set date after publication – typically a month or so after the advertisements appear.

Advertisers who buy their own space are known as direct clients in the industry. They often haggle over prices, but unless they are large-scale buyers of advertising have less clout than agencies who can buy in bulk. It often harder to collect money from direct clients than from agencies.

Rate cards

Publishers issue rate cards which show the prices or rates for each type of advertisement. Historically they were cards, but now they are usually available online, try Googling the term to see some. Rate cards prices are often, but not always negotiable. They also describe available advertising formats. Depending on circumstances rates shown on rate cards are negotiable.

When an advertiser or a buying agency buys advertising they are usually buying reach that is a publication’s ability to reach so many potential customers.

Advertorial

People in the business use the term advertorial when publishers offer advertising linked to editorial features, or in some cases when a publication’s editorial integrity itself is up for sale.

Advertorial deals come in many flavours. Many publications are more or less entirely made up of advertorial material – if an advertiser pays for space they are given a degree of say over what appears in the publication’s editorial content.

More credible titles wall off areas of content for advertorial projects. These might be clearly marked with terms like “advertising supplement” or “special advertising feature”, but it isn’t transparent to the reader.

Some publishers simply run editorial-style material provided by advertisers and charge for it. Others allow advertisers to send copy for inclusion alongside paid advertisements.

Publishers may or may not allow advertisers to sign off on their advertorial content. Some publishers will have journalists write advertiser-friendly copy for these sections, others keep up a strict demarcation between editorial and advertising.

It’s about the business model

As a rule, free publications are more likely to run advertorial and compromise editorial integrity for commercial consideration than paid-for titles. Paid titles are less likely to take this approach. Some paid titles have little in the way of advertising and charge a hefty premium for quality editorial content. This works best if they can manage a high circulation.

Have I missed anything here? Do you have any questions about how this works?

Other articles in this series:

Where the money comes from: - an introduction to traditional print publishing business models
Copy sales: – how traditional print publishers make money from selling copies

Publishers are experimenting with new online business models. So I’m starting a series putting newspaper pay walls, electronic books and other strategies in context. My plan is to show how old-school publishers made and continue to make money, then use this to examine their digital strategies.

This is a basic look at the print publishing business model. You may consider it oversimplified, but the big picture is more important than the details.

Revenue

Historically print publishers earned revenue from copy sales and advertising. Some publishers, mainly in the trade press, rely solely on advertising. Others, such as book publishers, rely solely on copy sales. Most newspapers and magazines make money from a mix of the two.

The balance between advertising and copy sales revenue usually determines a title’s editorial strategy.

The revenue part of a publication’s business model is simple:

Revenue = copy sales + advertising sales

Publishers who rely mainly on copy sales for their income typically spend more on producing quality editorial to attract readers. Advertising-focused publishers often put less emphasis on editorial. In extreme cases, they do away with editorial all together producing publications which closely resemble catalogues.

In part 2, we’ll look at print copy sales.

This post is deliberately short and simple. In future I’ll ask readers have I missed anything here? Do you have any questions about how this works?

Please add your comments and questions below or get in touch through my contact page.

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Computerworld Australia reports IT job advertisements continued their slide in May, which is bad news for tech-oriented knowledge workers. Overall job ads fell by 4 percent in May and 52 percent for the 12 month period ending in May. The number of IT job ads fell 58 percent over the 12 months. The numbers are taken from Olivier job index

The good news is the decline is is slowing down and part-time and contract positions were up during the month.

via IT jobs slump 5% in May: Olivier – Computerworld.

Simon Owens at Bloggasm writes music magazine Paste appealed to readers to help it out of its money troubles. The magazine needed $300,000 and after ten days received $175,000 in reader donations.

Some public broadcasting radio and TV stations raise money through donations — mainly in the US.

Can this model work for print?

The answer is, in a way it already does. Most print magazines already earn a portion of their revenue from copy and subscription sales. If there’s less advertising, the cover price is higher.

Many publications already carry no advertising and just make money from copy or subscription payments.

For example, New Zealand’s Consumer Institute magazine Consumer doesn’t carry advertising. The same applies to Choice in Australia and similar titles elsewhere in the world.

This means the magazine’s readers know its articles are written without any pressure from advertisers.

It can a good business model for publishers. Subscription revenue is more reliable than advertising and you get it before paying for publishing costs. I think we’ll see more subscription-driven print titles in the future.

Bloggasm » Can Paste’s success with reader donations be duplicated?.

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Hugh Hefner's Trump magazine Image via Wikipedia

This morning the grimly fascinating magazine death pool site noted the demise of Trump – a quarterly glossy magazine for affluent Americans. It carried advertising for overpriced luxury items. No doubt the magazine folded because there aren’t so many affluent Americans these days. Nor are there so many companies selling the yachts and limousines that featured in the ads. Its, er, successful launch was covered in Trump’s Luxury Magazine Off To A Good Start.

Although it carries his name, Trump isn’t the magazine devoted to all things Donald. There was such a monstrosity, but it closed years ago. By all accounts it was a horrible journal.

While it could be argued there’s a satirical aspect to the recently departed publication, Trump magazine is not the same as the Hugh Hefner magazine with the same name that only survived two issues in the 1950s.

Magazine Death Pool: Trump Magazine: RIP May 2009.

Rupert Murdoch says News Corporation will start charging for access to its news websites within a year. The Guardian quotes him saying this will fix what he describes as a ‘malfunctioning business model’.

Unless he has something clever up his sleeve, I think his words are just wishful thinking. Going by this Reuters report, News Corporation plans  to charge ‘micro-payments’.

He has a point

Murdoch is right when he says the business model for online news is broken.

Newsgathering and production is expensive to do properly. It requires far more than the pittance that can be earned from Google Ads.

Newspaper publishers historically made their money from two revenue streams: copy sales and advertising. When I first worked as a journalist in the UK in the early 1980s, copy sales made up the bulk of a daily paper’s revenue.

Advertising was just the cream on top.

Elsewhere, advertising is the bulk of a paper’s revenue. Kerry Packer famously once described the advertising going into Fairfax’s Australian metropolitan newspapers as ‘rivers of gold’. New Zealand newspapers have also done proportionately better out of advertising than copy sales.

Of course free newspapers only earn money from advertising. But, in general and with a few exceptions, their editorial is embarrassingly awful.

Print advertising revenue is dropping fast as advertisers move online. This is particularly true for the small advertisers who once paid for classified ads. Those dollars now go to web businesses like eBay, Google and, in New Zealand, Trade Me.

It won’t work for mass audiences

People might just pay for financial or other specialist information if it’s important to them and they can’t get it for free elsewhere. Otherwise, readers simply aren’t prepared to pay for content. And they certainly won’t do so if they don’t have to. The Sydney Morning Herald reports a survey saying what everyone working in the business knew already: Readers reluctant to pay for online news.

Previous attempts to charge have failed. When one paper charges and a rival doesn’t, the free site gets pretty much all the business. In the past publishers who attempted to run paid news sites either wised up or filed for bankruptcy.

Murdoch owns a lot of papers around the world. If they all impose a charging model at the same time they might just attract some paying customers. I doubt they will attract enough. The Murdoch papers certainly aren’t noticeably better editorially than their rivals.

I can’t see how this will work. Murdoch may be able to cut deals with phone companies and ISPs to deliver News Corporation content to customers behind certain content walls, but I don’t see consumers paying more than a few pennies per month for those kinds of services. There may be a electronic news reading device — perhaps it works on a subscription model. It would have to be good, simple-to-use and  inexpensive.

The paid content genie is well and truly out of the bottle. Not even Rupert Murdoch can put it back again.

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Although it looks and feels like a magazine, the Economist more often refers to itself as a newspaper. It is one of world’s the smartest, most intelligent and enlightening publications. I don’t always (maybe not even often) agree with its editorial point of view, but it argues well and doesn’t patronise readers or wimp out and take the soft option. It has my respect.

I’m not so sure I can say the same any more about the Economist Intelligence Unit. In the past I’ve seen some cogent, well-researched and extremely informative articles from the EIU, but one recent report has caused me to seriously question the Unit’s judgement and integrity.

According to the press release promoting a report entitled Enterprise Knowledge Workers: Understanding
Risks and Opportunities:

Knowledge workers often seek unconventional and potentially risky “workarounds” to complete tasks, says Economist Intelligence Unit

and;

Knowledge work extends broadly across all industrial sectors, and characterises enterprise processes up and down the value chain.

and;

To do their jobs, knowledge workers use the gamut of different media and technology available to them.

Talk about ‘the bleeding obvious’.

There’s plenty more of these mind-blowing revelations elsewhere in the press release. The good news is there is no charge to download this ground-breaking document as your copy has already been paid for by SAP who sponsored the ‘research’.

And what’s the pay-off for SAP? Well, according to Doug Merritt, executive vice president of Business User Development and corporate officer of the SAP Group. “The results of this study confirm the importance of giving knowledge workers increased, secure access to the information in the applications they use today.“

Guess what SAP sells?

You’ve got it. Expensive software to give people safe access to corporate data.

Now, I don’t have a problem with SAP commissioning research to back up it’s sales pitch. That’s fine and, anyway, it’s pretty much a standard marketing technique up at the enterprise level of the information technology industry. Basically, the report is a sophisticated advertising brochure to help shore up the business case for large companies to invest in SAP’s software.

My problem is the way the EIU has risked its integrity, and by extension, the integrity of its prestigious newspaper in order to pull a few dollars out of SAP’s marketing budget. I’ve always placed a lot of trust in the EIU’s work, particularly the country reports. Here’s how the EIU describes itself on its website:

The Economist Intelligence Unit has one of the largest and most experienced country analysis teams in the world. Our 100 full-time country experts and economists, based in London, New York and Hong Kong, have a thorough grounding in economics, politics, risk and industry. Most have lived and worked in the region they cover; many are fluent in local languages; and three out of four have advanced degrees. To ensure that this expertise remains fresh and up to date, each country analyst focuses on two or three countries, and visits them regularly.

I’m not claiming the EIU perjured itself in the SAP report. I’m not qualified to judge and, anyway, the document is too dull to fully deconstruct. But there’s a thin ethical line between taking money from SAP to write what amounts to a glorified advertisement and taking money from, say, North Korea, to write a report about the glorious success of that country’s missile industry.

As the EIU states on its website:

The Economist Intelligence Unit is a leading provider of country, industry and management analysis. Our mission is to provide executives with timely and reliable analysis for making successful global decisions. Any time, and anywhere, our latest intelligence provides the knowledge you need to inform your strategy and support your business.

You don’t need to be a genius to figure who’s business the Enterprise Knowledge Workers report is supporting.

The smart thing would be for the EIU to establish a separate, but related brand, for it’s, er, more commercially-oriented research.

Rupert Murdoch’s The Australian has a Media section which is often a cracking read for those of us who work in and around newspaper and magazine publishing. The newspaper’s media pages don’t shirk from running stories that debunk common myths (often self-perpetuated myths) about the internal workings of the media and the challenges the industry faces.

A good example is The winter of journalism’s content which points out that online publishing, which is widely expected to supplant newspapers and magazines, will only go so far in replacing them and leave a gaping hole. This has huge implications and is something I’ve worried about for some time now.

The economics of online publishing mean there simply isn’t enough money to pay for the in-depth news investigations and searching features on politics, crime and other social issues that are so important to modern democracies.

As we all know, advertisers are bailing out of print publications. They are drawn to the web because they see it as a more cost-effective and accountable medium (that’s a disputable assumption we’ll leave for another day).

In particular, online advertisers like to place their messages next to niche interest stories to more closely target interested readers. For example car makers prefer to buy banner ads on pages featuring lightweight stories about driving.

Even if a publisher could find the money to produce hard news stories, advertisers wouldn’t want them. The obvious answer is to publish fewer hard news stories and more of the marketable lightweight fluff. However, it’s traditionally been those difficult, hard news stories that have sold printed newspapers that dragged in readers in the first place.

But this vicious economic cycle is nothing compared to what can happen in a society that no longer has a viable mechanism for scrutinising governments and out-of-control corporations.