Included below is an explanation from Kaupthing analyst Dag Sletmo, who was kind enough to respond via e-mail to my questions about why he predicts online business will grow into 60 percent of all Schibsted revenues this year. You'll remember that the International Herald-Tribune based a rather glowing story on Kaupthing's forecasts. If what Sletmo says gets confusing, don’t worry, I’ll explain below. But I want to put his comments here in raw form first:

Sixty percent of earnings from online is less spectacular than it sounds. It was maybe 50 percent in 2006 on an UNDERLYING basis. By underlying, we mean ex project costs. Schibsted is investing heavily in new projects, primarily within Internet, and these are charged directly through the P&L; although they, in an economic sense, are investments (which should have been put on the balance sheet and appear in the P&L; as depreciation).

If the 50 percent of earnings from online grows by 30 percent this year, and the "old" stuff grows at 5 percent, you are close to 60 percent.

Another point which is relevant in this context and widely misunderstood by investors; what matters in the print to online migration is EARNINGS, not sales. This is against financial intuition, which says sales is what matters when growing a business. In this case, it doesn’t apply due to very different margins and business models/dynamics (one key element is the disconnection of the actual printing, the paper and physical distribution - this is not part of the core product and is very low margin)

The thing that confuses people is the statement on the Schibsted Web site that online business accounts for 20 percent of profits. But Sletmo said that number not only is slightly outdated but also includes costs that he considers capital investment instead of expenses. If investments are not treated as expenses, then the share of profits generated in 2006 by online business increases to about 50 percent.

Sletmo expects online earnings to increase by 30 percent year-over-year while print revenue (and anything else considered "old") will increase only 5 percent year-over-year. The slow growing “old” revenue and fast growing Internet revenue has the effect of increasing online profit share quickly.

Just to be clear: This idea of treating new online expenses as investment isn't common here in the United States, at least not that I know of. More commonly these costs are treated as expenses when reporting profit margins, etc.

And when I contacted the media relations folks at Schibsted, they seemed to include investments as expenses in the figures they reported, saying online business accounted for 14 percent of total revenues and 28 percent of profits in 2006.

I totally agree with Sletmo’s distinction that when transitioning media businesses to the Web, the important thing to watch becomes earnings and not total revenues. This is because costs of doing business online are much smaller than in traditional models. And that makes a big difference. The question becomes: Can the media business shed the costs of its "old" business fast enough to keep pace with the transition of advertisers and other sales to online?