Ed Kohler at his blogsite posted a fascinating analysis of how the VVM folks have apparently rigged their visitor stats through manipulation of Digg's system. While this isn't new news about media companies doing unethical things to boost ratings, it's always a blow to an already damaged credibility of media at a time when they need to build strength on an honest reputation.
In the end it's a silly enterprise to rig the numbers for a host of reasons. But the obvious reason (assuming one has no compunctions for unethical behavior) is that it doesn't really help financially.
It's sort of like you need a million bucks within a short time and you decide to knock over 7-11s on a spree to raise the dough.
VVM is a big company leveraged at a time when high leverage is lethal. Most likely they've been negotiating forbearance agreements and new terms with bankers. They made it clear last summer they couldn't raise bond for the SFBG predatory pricing lawsuit they lost at trial (and that was only about $20MM).
Most likely they are suffering the same declines as other major metro papers in sales and profitability.
In short, they need to accelerate cash flow to cover the cost of capital (current operations and indebtedness, essentially the cost of staying in business). They can cut expenses only so far (see the flurry of announcements from VVM recently). The real bully in the financials is the cash flow need for servicing the cost of indebtedness to bankers for financing past acquisitions. What makes this so burdensome is that it's sort of like when you run you up your credit card limits while you have that great job with lots of upside income—and then you lose that job and take one making substantially less. Now you're paying off old debt that has no utility for generating new resources or new income, and it conversely drains your available resources today.
Since VVM is privately held we don't know much about their financial condition. Well, we do know enough to know they are in the same predicament on loss of print sales as everyone else and that they have to carve out new sources of income from digital (at least).
For every $1MM in income from digital ad sales, they need about 50MM visitors to their sites.
Of course digital ad sales is but one stream from increased visitor traffic, but it's the major one for them if it's hit and run traffic.
Let's say you owe bankers $150MM (I'm just throwing a number out there). Let's say the bankers would like to get at least interest payments for the next few years. Let's say the bankers are generous given the financial climate and adjust interest rates down to 4% (who knows where they're willing to go these days, right?).
Now you pay the bankers $6MM+ a year to stay even (sort of like making that minimum payment on the credit card bill, minus any principal).
So, that calculates to 300MM visitors to just pay the debt service. A few million extra visitors from Digg doesn't even put a dent into that nut.
Well, at least the VVM web folks were trying. Now, knock it off so you don't spoil it for everyone else trying to earn an honest buck and make the web a credible medium for commerce.
