Varian assembled the following chart in his deck:
In addition, he subsequently derives a number of macro trends affecting the online newspaper model, consumer habits, etc, etc. No need to discuss those here since he covered them so aptly, so I will just ask the following question: What if, newspapers could, from one day to the next, turn off the print business entirely and become pure play online businesses?
In the interest of grossly oversimplifying a restructuring, I've taken a stab at revising the income statement (yes, I know, there are dozens of additional atrocities on the balance sheet that I'm ignoring) to the following:
Note that the net margin is still $13, on roughly half of the revenue!! Whether that incremental margin percentage is sustainable over time is debatable, but one of the beautiful things about restructurings is that you get to look at things with a clean slate.
With printed newspapers out of the picture, in my perfectly rudimentary analysis, I've assumed that retail & national advertising remain where they are, that classified revenues take a nosedive by over 85%, newsstand sales vanish, and subscription sales manage to maintain by simply shifting to web only (for premium editorial, crosswords, or things such as tablets). On the cost side, I've assumed that 33% of administrative overhead costs are saved by the simplified model, that production costs are halved since print isn't needed, and distribution & raw materials vanish.
Obviously, you might have a different take on my assumptions, but the basic exercise is that if you stop focusing on revenues so much and instead focus on gross profits, the world might improve dramatically (or might not look so bleak, as in the case of newspapers).
.
