Reaching digital revenue profitability for local media companies varies based on many factors.
A survey of financial executives released Friday shows 41.5% as the average gross margin and 32.8% as the average earnings before interest, taxes, depreciation, and amortization (EBITDA).
The results of the survey — How Profitable Is Digital Revenue — found the greatest challenges are accurately tracking and maintaining profitability of digital products, and points to the entanglement of digital with broadcast media products, because they are not clearly differentiated.
The main challenges among the top five included:
The online survey with email solicitations was fielded between October 24 and November 2, 2023, and targeted the executive members of the Media Financial Management Association, as well as Borrell Associates clients. All but one of the 58 responses were from U.S. media companies representing newspapers, radio, TV, cable, outdoor, and magazines.
Borrell Associates CEO Gordon Borrell pointed to adjusted Q3 2023 operating margins for digital revenue from several companies including Townsquare at 31.8%, iHeart Media at 30.9%, Gannett DMS at 11.4%, and Entravision at 14.4%.
While executives expressed a high degree of confidence in the calculations, some expenses associated with digital operations were excluded.
Some 81% said they were calculating digital profitability, while 71% of survey participants said their companies have a formal framework for calculating digital profitability.
The survey asked executives to cite company estimates for individual profit margins on a variety of products and services.
While search engine marketing came in at the very bottom with 23%, the average top four included banner display advertising at 65%, followed by mobile app advertising at 57%, whle targeted display advertising and email both came in at 53%.
Website development also ranked low on average at 38%, with social-media advertising at 35%.
On average, companies report revenue 11 digital products, and profit margins are calculated for an average of seven digital products.
Interestingly, the highest profitability reported was for email newsletters, mobile advertising, banners, and geofenced ads.
When calculating expenses for digital operations, most do not include shared resources with the core product, including production staff, equipment, and office space.