The wedding of The Daily Beast and Newsweek is over. On to the honeymoon.
The combined companies are losing an estimated $100,000 every day, so the critical question is this: how much job cutting, circulation boosting and ad selling will be enough to make it work?
More than looks reasonable from here.
Newsweek has been bleeding money so profusely — even in a time of recovering ad sales — that a quick rebound would be nothing short of miraculous.
READ ALSO: Is the Media Rebound for Real?
“I regard ‘Newsweek’ as a fantastic, legendary brand,” Brown told Daily Beast staffer Howard Kurtz on CNN’s “Reliable Sources” on Sunday. “And I have this tremendous weakness for fantastic, legendary brands, as you know.”
But brand restoration is not the issue here.
Newsweek has been hemorrhaging cash for years, including $40 million in 2009 and $28 million in 2010 — which is why 92-year-old Sidney Harman was able to buy the magazine for a single dollar in August, plus assumption of its heavy liabilities.
One knowledgeable insider said the business plan was to aim for losses of only $20 million in 2010. (Uh-huh: only.)
Read also: Diller’s Brilliant Coup — How He Got Newsweek Without Paying for It
Stephen Colvin, the chief executive of the combined company, was not available for comment on Monday, according to an IAC representative.
One of keys behind the Newsweek deal from the Daily Beast's perspective was getting a print vehicle to leverage ad sales. But part of the problem is Newsweek, like most print magazines, has seen its print advertising decline bleed to the point of, well … the Washington Post Company having to sell it for a dollar.
Through September — in a year when a lot of magazine publishers have been touting a Madison Avenue comeback — Newsweek’s ad pages fell 12.7 percent, according to the Publishers Information Bureau. And Newsweek's estimated ad revenue is down more than 30 percent to $114 million — or about $50 million less than it pulled in during the first nine months last year. Its paid circulation was 1,610,632, having slashed more than a million copies from its rate base in the last 18 months.
Like it or not, the print product Diller got — or stole — may not prove to be the revenue-driver he had hoped for.
And like Newsweek, the Beast has been burning through cash, too. The site loses roughly $200,000 a week, or north of $10 million annually, to go along with Newsweek’s $28 million. “Put the two entities together and you're losing a million dollars every 10 days or so,” Choire Sicha observed on the Awl.com – emphasis his.
According to Newsweek's sale presentation — posted, ironically, by the Daily Beast in August — print accounted for 94 percent of Newsweek's $165 million revenues in 2009. Newsweek.com made $9 million, but with $14 million in operating costs, it actually lost $5 million last year.
There’s no talk of a paywall yet, despite Diller’s fascination with them. By rolling Newsweek.com into The Daily Beast, the idea for Diller and Co., according to the New York Times, is that they’ll be able to “absorb” part of Newsweek’s traffic, in part because “the Daily Beast’s traffic growth has slowed lately.”
Brown’s already encountered a branding misstep in terms of clarifying what will become of Newsweek.com, a website with about 6.2 million unique visitors in the U.S. each month that is being “swallowed” by the Daily Beast and its monthly audience of 3.3 million.
Brown scoffed at the notion that Newsweek.com is being shuttered. The site’s “superb content will live on under its own banner & in URLs on the new site,” Brown insisted in a Twitter post. “Not shutting down, combining.”
The digital staff is utterly confused. (So are we.) A person on Newsweek’s digital side said that while the site is growing well, the staff is “largely in the dark,” and no one in power — not Sidney, Tina or Barry — has talked specifics about anything. (Tom Ascheim, the executive who was charged with building out Newsweek’s digital operation, is leaving the company.)
But given the discrepancy between print and digital CPMs, it’s fair to say that even at current levels, monetizing that traffic is not going to put a huge dent into its debt, at least not initially. And the cost of printing Newsweek continues to be astronomical.
So how does a combined company — with roughly 320 employees — begin to make up roughly $38 million? Part of the answer, of course, is layoffs — which Newsweek.com staffers, in particular, are bracing for.
“It is inevitable that if we merge two organizations intelligently, there will be some modification,” Harman told Kurtz on Sunday.
Saving jobs is precisely the reason Newsweek.com staffers launched an anonymous Tumblr account — to save theirs. “Newsweek.com … always remained an ugly stepchild to its print grandparents, who were too busy burning money to notice,” the lone post reads.
In terms of looming job cuts, though, it could've been much worse. Many of the big-salaried Newsweek magazine employees left in the post-sale exodus, and there weren't many big salaries on the dot.com side to begin with.
But the opportunities to make up the ground elsewhere appear to be looser, at best. Newsweek already boosted its cover price last year, part of a drastic cut in circulation and shift to less "news" and more analysis — something more akin The Economist.
They upped the paper stock, so they could cut back on that — though thinner paper is not what Brown had in mind last week when she said her goal was to return Newsweek to its "glory days."
It would seem glory days for both Newsweek and the Daily Beast are pretty far off.
