As advertising revenue maxes out, paid content is the Holy Grail for both consumer and b-to-b publishers across all products—print and digital. A new firm called Scout Analytics is working with publishers to determine the revenue potential of that audience and how publishers can reach that potential profitably.

ScoutAnalytics currently works with NASDAQ and Internal Securities Inc. “We’re trying to increase revenue per reader by looking at loyalty and trying to monetize that loyalty,” says senior vice president of marketing and strategy Matt Shanahan.

The formula is simple: take the publication’s revenue and divide it by audience size, similar to the mobile phone industry’s Average Revenue Per User metrics. “This is a quick, easy metric to figure out if this business is on track and how is it benchmarked against other people,” says Shanahan. “Immediately you would say, ‘Wait a second, there’s all kinds of different revenue streams,’ and we agree. But the fundamental thing the publisher is monetizing is the audience. If you’re selling audience circulation data, you’re monetizing the audience. If you’re charging subscriptions, you’re monetizing the audience. If you’re selling impressions to the advertiser, you’re monetizing the audience. We try not to worry about channels such as print versus digital. Where print versus digital comes into play is print has much higher overhead.”

While he cautions not to read too much into the figure, Shanahan says he hasn’t seen any publishers to date with a revenue per visitor ratio of $5 be profitable. “As we see operations get smaller they have to be almost purely digital to be profitable with a ratio of less than $10 in revenue per visitor.” a Sustainable Business, Demand Media Not So Much?
Shanahan offers a blog in which he analyzes revenue per visitor ratios for different media companies (not clients of course) and has some interesting takeaways on which companies seem to be developing sustainable audience monetization models.

Shanahan determined that’s 149,000 subscribers paying $4.25 per week generate at least $32.9 million in annual revenue. He then compared that to Huffington Post, which needs 30 million readers (paying $1 per year) to generate the same revenue. Shanahan writes, “The FT’s digital operations are on pace to generate about $200M in 2010.  This comes from the 149k subscribers, 2.5M registered users, and 1,000 corporate subscriptions—a base of somewhere between 2.7 and 2.8M million readers. In the HuffPo model, they need 200M readers or about 40% of the Facebook population to achieve the same number. FT’s overall gross revenue is over 100 times better than the HuffPo model.  This is the power of the metered model.”

On the flip side, Shanahan says he’s dubious about the long-term prospects of Demand Media. Based on an All Things Digital article that says Demand Media could do $230 million in revenue off 54.6 million visitors (with 60 percent or $138 million coming directly from content), Shanahan determined Demand Media’s revenue per visitor ratio is $2.53.

“If you take what they say about uniques—86 million—and break down revenue per user, that’s $1.60 per user,” he adds. “Look at how many page views they have over a year and how many users they have to accumulate over time. All it takes is an SEO engine to change their algorithm and they lose their traffic. They’re going with this Wal-Mart strategy of revenue and we don’t see it as sustainable in the long run.”

Pay-to-Play: How to Use Paid Ads on Social to Amplify Your Brand’s Content
Check out this related session at The Folio: Show, November 1-2 in NYC!

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