The financial pages made heavy weather of interpreting Pearson's
interim results, released last week. The story they were desperately
keen to run with was a sorry tale of a love affair gone sour. By and
large, they struggled to pull it off.
When she was appointed in 1997, Marjorie Scardino (who's still the only
female chief executive of a FTSE 100 company) initially had a tough time
convincing a sceptical City that a woman could handle the top job.
But she soon had hardened analysts prostrating themselves at her feet,
eating out of her hand and generally displaying all the usual symptoms
of having succumbed to dangerously high levels of raw charm. Something
to do with the fact that she has a Jerry Hall-like Texas drawl. That and
the small matter of her not only transforming a stuffy old conglomerate
into a sexy media company but actually turning in some impressive
results. The share price soared.
It soars no longer - in fact, it has crashed from £20.76 to £9.39 over the past 12 months. And last week, Pearson declared a £233 million pre-tax loss for the first six months of 2001. "She has
punted the whole business on the internet and it hasn't worked," said
one City source quoted by The Daily Telegraph - one of the most
reluctant members of Scardino's fanclub.
The un-named source was, of course, highlighting the fact that the
losses were almost totally down to continued investment in the group's
portfolio of online publishing ventures, the flagship being FT.com. Big
investments, small returns. So is the love affair really over? Are her
critics now softening her up for a cameo role as a belated new-economy
casualty? Another blonde dotbombshell in the Martha Lane Fox mould?
Strange, then, to examine the fine print of Scardino's presentation.
Particularly the bit where she states that "internet enterprises are on
track to hit break even".
Really? How so? Hasn't she heard of an online advertising slowdown that
makes the old-economy ad market look buoyant? The answer may have more
than a little to do with the improbable reappearance of a previously
discredited business model. We're talking electronic subscriptions.
According to FT Group's chief executive, Stephen Hill, getting users to
pay for content will boost revenues as overheads continue to be
rationalised - as per the original long-term business plan, he
The plan has always been to build a large and loyal customer base and
then the next stage is, in FT-speak, about "monetising" that
In other words, charging for access to content. That's why the group
expects its online properties to break even at the end of 2002 and be
And it has seemingly ambitious targets. One insider reveals: "By the end
of the year, 60 per cent of revenues are expected to be from online
advertising and 40 per cent from premium services." Even this isn't as
simple as it sounds - that 40 per cent figure includes revenues for the
syndication of FT.com content across other websites, not just consumer
access to premium zones. But that will still mean that FT.com's revenues
will be better balanced than for the newspaper, which traditionally
takes upwards of 75 per cent of its revenues from advertising.
Is this wishful thinking? "It's a struggle, isn't it?" David Stubley,
the managing director of Outrider, says. "The Financial Times can charge
a premium for content in the offline world. Whether you can do the same
online is not yet proven. But the problem is that when you give it away
for free, it doesn't pay the bills. The interesting thing to consider
here is the statistic that two-thirds of those who read online don't
read the offline version. So it has to go down the subscription route
and obviously it aims to have online mirroring what it does in dead tree
But will it work? The thing that makes many nervous is the fact that the
industry is revisiting a model that was comprehensively rejected a
couple of years ago. The point is that the internet offers such a vast
ocean of material that if you're prepared to look you'll find most of
what you want for free.
Except, perhaps, word games. The Times recently started charging £10 a year for online access to its legendary crossword. It obviously has
paid-for content pretty high up its agenda.
And other newspaper publishers are tentatively exploring the
subscription model. However, Simon Waldman, The Guardian's director of
digital publishing, agrees that publishers on the mainstream consumer
side have perhaps been slow to grasp this particular nettle. "Our view
is that if you fast-forward five years, you'll find that subscription or
other forms of paid-for content will be a standard part of the revenue
mix. But we fundamentally believe in online advertising and it will be
the main form of revenue. Subscriptions will be there but they will not
be a panacea as some people suggest."
Waldman can't see anyone putting a barrier at the front door. "You might
get the news for free but have to pay for other things." Such as
"Yes," he says - but like other publishers, Waldman is rather vague
about what else might work. He adds: "The priority has to be to get the
advertising side right - the advertising model exists and it works.
We've always seen an analogy with TV - it was free for ages then people
starting finding ways of charging for bits of it."
Problem is, we might just be talking about "bits", as in crumbs. On the
other hand, perhaps business publishers are in a good position here.
They have the sort of trusted must-read content that people, especially
in a business environment, will be prepared to pay for. As Stubley puts
it: "If the FT can't charge for content, who can?"
I-RECALL: DOTCOM WEEKLY AWARENESS SURVEY
Rank Site Agency/Media Adspend Aware-
1 BTinternet AMV BBDO/Zenith Media 1,348,000 75
2 AOL MWO/BBJ 9,534,000 67
3 NTL J. Walter Thompson/Carat 272,000 63
4 BBC Online In-house/PHD 300,000 62
5 EasyJet In-house/BBJ 406,000 60
6 Lycos Leagas Delaney/BBJ 1,391,000 46
7 MTV In-house/Equinox Communications 33,000 40
8 Jamjar MWO/MediaCom 1,905,000 38
9 Jungle McCann-Erickson/Optimedia 1,360,000 23
10 Ladbrokes Banks Hoggins/FCB/Mansfield Lang 5,000 21
11 Elephant In-house n/s 20
12 Go-Fly HHCL & Partners/Optimedia 2,491,000 17
13 Priceline Lowe Lintas/Initiative 3,798,000 12
14 Workthing WCRS/Walker Media 1,171,000 10
15 Asserta BMP DDB/OMD 67,000 7
Source: Taylor Nelson Sofres PhoneBus, tel: 0800 0183618. Advertising
spend figures by AC Nielsen MMS: 01763 248828. The survey was conducted
over the weekend of 4-5 August based on a representative sample of
around 1,000 adults. The companies included in the PhoneBus are a
combination of those that have achieved high awareness scores in
previous weeks and those launching new, high-profile ad campaigns.