Why The Daily will succeed – or not

The Daily, which is set to launch this week, could be a capitvating hit, a spectacular miss or something in between. But one thing is sure:

Rupert Murdoch, the last swashbuckling publisher of our time, will shake up the media world on Wednesday when he introduces the first iPad-only news product, which is expected to be sold in subscriptions costing 99 cents a week.

While it is too early to tell how well The Daily will do, here are the key factors that will determine its fate:

Why it could succeed

:: No baggage. As an all-new product built specifically for the iPad, The Daily can take advantage of the full multimedia and interactive capabilities of this exciting new platform. Thus, The Daily can avoid the common mistake among the legacy print and broadcast media of trying to replicate their existing products on the iPad, instead of creating something refreshingly new.

:: Wealth of content. As the pet project du jour of Mr. Murdoch, The Daily is likely to be able to pull from the global, cross-media content resources of News Corp. This includes not only such varied publications as the Wall Street Journal, The Times of London and the New York Post but presumably also the rich media and reporting produced by Fox Cable News and the Fox Television Network, which has outlets in almost every market in the United States.

:: Powerful promotion. The unsurpassed reach of News Corp.’s diversified media properties means The Daily will have millions of free (or deeply discounted) marketing impressions every hour of every day, around the world and around the clock.

:: Deep pockets. With $33 billion in sales and $5.7 billion in operating profit, News Corp. is well positioned to subsidize The Daily for as long as Mr. Murdoch cares to pursue the project.

How it could fail

:: It’s not free. While publishers from the Augusta Chronicle to the New York Times increasingly are moving in the direction of charging for the news they digitally delivered for free for 1½ decades, any number of alternative news sources are likely to eschew charging for content for as far as the eye can see. The business models of ventures like Huffington Post and Patch.Com call for them to generate as many page views as they can to build their ad inventories. HuffPo, among many others, specializes in summarizing stories originating at other sites. When The Daily publishes worthwhile stories, it’s likely that HuffPo will want to crib from it, too. And they’ll be free.

:: Embedded competition. Widely presumed to be a general-interest national news product, The Daily will compete with well-established brands ranging from Google News to the digital edition of every local newspaper in the land. Each of the incumbent media already has a following because it fulfills the needs of its readers. Further, many of the incumbents are freely accessible on not only iPads but also on desktops and via the mobile media. In other words, The Daily will have to be a breakout product to break the long-standing habits of avid news consumers.

:: Finite market potential. Regardless of the quality of The Daily, its audience necessarily is limited to those who own iPads. With iPad sales brisk in the 12 months since the product was introduced, there will be perhaps 40 million of the machines in the hands of global consumers by the end of this year. If 2% of those users subscribe to The Daily, the project could generate approximately $40 million a year in subscriptions, which would be augmented by an equal or greater sum in advertising. As such, it could be a respectable and profitable business. If only 0.5% of iPad users sign up, however, the project would reap some $10 million in subscription sales, which, in turn, would seriously reduce both its advertising potential and chances of profitability. If the response were even weaker, The Daily in all likelihood would not achieve commercial viability.

:: The chasm challenge. The Daily, like any other start-up, will have to cross the chasm of anonymity and consumer indifference in order to amass the critical number of readers it needs to generate adequate subscription and advertising revenues. The longer The Daily takes to break even, the more expensive the venture will be for News Corp. While the 79-year-old Mr. Murdoch likely is prepared to underwrite many millions in losses, his patience and lifespan are not inexhaustible. At the end of the day, the fate of The Daily may depend most heavily of all on the disposition of the mercurial Mr. Murdoch.

Build broad app portfolios, publishers told

Publishers can’t base their mobile strategies on a single app for the iPad and another for smart phones, warns a thoughtful new white paper from the International Newsmedia Marketing Association.

Rather, the study says, publishers have to produce an ever-evolving variety of apps for each platform to appeal to an increasingly fragmented market of consumers.

The INMA report, which was released today on the one-year anniversary of the introduction of the iPad, can be purchased here.

“You no longer can say we make one thing for everyone,” said Swiss media strategist Gerd Leonhard, who was quoted in the worldwide survey by the industry association. “I may like to read a magazine where all the links are active, videos are playing, where I can chat with people. But many others may just want to read.”

Because different consumers have different expectations, the study advises publishers to build suites of specialized applications – weather apps, stock apps or travel apps – that focus on doing one thing but doing it well.

And publishers evidently will need to keep them coming, too. As illustrated in this separate study by Pinch Media a year ago, 95% of users abandoned their free iPhone apps within 20 days of downloading them.

Notwithstanding the costs associated with producing a continuously replenished supply of apps, the INMA study warns publishers not to expect to be able to charge as much for the digital renditions of their print products as they get for the real thing.

Although “iTunes was supposed to reinvigorate the music Industry” by making it possible for record labels to sell each of the 12 songs on an album for $1 apiece, “very few people are buying,” said Leonhard. “iTunes is a huge success but music industry profits declined 65%.”

He and others quoted in the report tell publishers they will have to look to advertising, sponsorships and other sources to realize the full revenue potential for their mobile initiatives.

Apart from the technical and commercial challenges associated with app development, publishers will face some cultural issues, too.

“One of the problems for publishers is they’ve always wanted to have a mass medium,” said Leonhard. “Now, we have a mass of small mediums.”

UC-Berkeley invites international journalists

Applications are being accepted through March 14 for a unique program providing mid-career journalists from outside the U.S. with an opportunity to pursue advanced professional training and academic study at the Graduate School of Journalism at the University of California at Berkeley.

In the non-degree Visiting Scholar program, participants can audit courses offered at the journalism school and in other disciplines, drawing upon the extensive resources and community life of a major research university. Disclosure: I am the director of the program.

Journalists accepted to the program can participate for either the entire 2011-2012 academic year or for a single semester of their choice. Information about the program, including fees and application requirements, is here. The deadline for applications is March 14.

Prime time for iPad may be prime time

Just as video recorders let consumers time-shift their television viewing, the iPad may be encouraging users to do the same with news and other content, according to an intriguing – but unfortunately limited – new study.

The study was conducted by the company that makes an app called Read It Later, which lets users electronically earmark content for consumption at a more convenient time in the future.

After looking at when its users consumed 100 million earmarked articles, the company found that iPad use was heavily concentrated between 7 and 11 p.m.

As illustrated in the first graph below, users get a steady flow of news, information and other content from 8 a.m. until bedtime. But, as shown in the second chart, the users of this particular app tend to concentrate their reading in the after-dinner hours.

While these findings suggest interesting ways to release, package and market content for the iPad, it also must be noted that the research is limited to a sample of people who are sufficiently motivated to time-shift content to use this particular app.

Until someone researches consumption patterns across the entire universe of iPad owners, we won’t know whether this group of users is typical or exceptional.

If a broader study finds that prime time indeed is the prime time for iPad use, newspaper publishers may want to consider producing products that come out early in the evening, instead of in the morning or after their print products are put to bed at midnight.

Fresh news timed to arrive at dinnertime would be an interesting blast from the past for those of us who once worked on afternoon newspapers.

Mobilizing for mobile before it's too late

This column originally appeared in Editor & Publisher Magazine. Click here to subscribe for timely delivery of the magazine.

Amazingly, newspapers are making the same self-defeating mistakes with their mobile initiatives that they did with the Internet.

If they don't do better this time, publishers will blow a major opportunity to preserve the value of their franchises as the power of print continues to wane.

Here's why mobile matters: Mary Meeker, a former securities analyst at Morgan Stanley with a better than average track record of envisioning the future, believes that more page views will be consumed on mobile screens by 2014 than on conventional PCs and laptops.

Meeker left Wall Street at the end of last year to become a partner in a major Silicon Valley venture firm where she will specialize in investing in mobile start-ups.

Although publishers are properly focused on mobile, most of them are fumbling this opportunity the same way they fumbled the Web. Here's how that went:

When publishers no longer could deny the gathering importance of the Internet in the 1990s, all but a handful of them shoveled the content from their print products onto their websites and gave it away for free. Seeing little point in Internet advertising, most publishers gave print advertisers "bonus" online ads that they essentially trained advertisers not to value.

Publishers didn't make much money doing this, but the strategy, if you can call it that, made them feel good about themselves at industry functions.

Publishers didn't get serious about the Net until print advertising began the five-year swoon that so far has carved some 50 percent off the record $49 billion in sales the industry notched in 2005. The faster print unraveled, the more feverishly publishers sought to build traffic and sell ads on their websites.

But they continued freely giving away the same expensive-to-produce content they put in their newspapers, resulting in two unintended consequences:

1. They shifted a growing number of formerly paying print readers to the Web, while barely attracting any new consumers to their online platforms. Although you won't see this on anyone's rate card, every savvy publisher knows that some 90% of the traffic on her website comes from current or former print subscribers.

2. Because they failed to differentiate their print and Web offerings, publishers almost certainly hastened the erosion of their circulation and, thus, the print advertising that is the mainstay of their business. Weekday circulation has slid 37% in the last two decades to a point that only one out of every three households today takes a newspaper, compared to an average national penetration of more than 100% in 1970.

In other words, the online efforts undertaken by most publishers probably hurt them more than they helped them. If nothing else, it cost newspapers decades of time, giving a world of digital competitors a handsome head start.

Now that the move to mobile is giving publishers their last, best chance for a do-over, they are doing exactly the same un-strategic things they did on the Web in hopes of achieving a different outcome. No less a figure than Albert Einstein considered this sort of thinking to be a form of insanity.

With few notable exceptions, the mobile apps released by newspapers to date do little more than faithfully reproduce the same content already carried in print and on their websites. In addition to typically being free for consumers, the apps carry little, if any, advertising.

Worst of all, the apps are doing nothing to attract the two-thirds of the people who do not happen to read a newspaper or visit its website. And a great number of those people are in the under-55 generation coveted most by advertisers.

What to do? Instead of replicating the same old - and I do mean old - products on Android or the iPad, publishers need to develop apps that take advantage of the characteristics that make these powerful computing platforms so damn compelling:

1. People use mobile devices to find information, get directions, check prices, play games, listen to music, and, yes, sometimes even surf the news. Because consumers are not passive, successful apps must be engaging and transactional.

2. Mobile devices don't just put the user in control; they also enrich the experience by knowing exactly where consumers are - and, in the case of many apps, exactly who they are. Accordingly, successful apps must be customizable and geographically aware.

3. Community and self-expression are as elemental to the digital experience as the information the media dispense or the transactions they enable. Successful apps foster community and enable user control.

Static apps filled with yesterday's news just won't cut it. This time, newspapers really, really can't afford to get this wrong. Really.

(c) 2011 Editor & Publisher

Partisan media helped pull trigger in Tucson

The partisan media helped pull the trigger when an apparently deranged young man gunned down Rep. Gabrielle Giffords at a crowded supermarket on a sunny Saturday morning.

It is time for everyone from Fox News to MSNBC to amp down the hateful hyperbole that created the toxic atmosphere that likely helped push the Tucson shooter over the edge.

There is little doubt that the partisan media share blame for the tragedy because they fed – and feed off – the increasingly virulent environment that made it perfectly acceptable for the likes of Sarah Palin to literally put political opponents like Giffords in the crosshairs on her website. Palin scrambled to cover her tracks over the weekend, but the evidence (left) will be well preserved on the web.

In a more civilized time in the not-so-distant past, Palin would have been marginalized by the mainstream media and responsible politicos as the intellectually bereft and pandering opportunist that she is. Instead, Palin got a Fox News contract, not to mention endless free ink and airtime across the media spectrum.

The legitimization, if not to say celebration, of an unsavory figure like Palin is but one example of how the ascendant power of the partisan media has warped the coverage of public affairs at one of the most sensitive moments in the history of the American republic.

With the nation facing economic, social and global challenges as daunting as any in history, we are at the point of political gridlock. Yet, the media — which once served to moderate and modulate the political discourse – instead have been co-opted by the hyper-partisanship fanned by the blogosphere, talk radio and cable news.

Although Fox News attracts an audience on a typical night of no more than 3 million viewers – barely 1% of the nation’s population – for its most popular show (Bill O’Reilly), the network commands a disproportionate influence over what makes news and the way it is covered.

Using mandatory talking points distributed by senior management to the hosts of its programs, Fox News unambiguously pursues a partisan, right-leaning political stance with language, graphics and on-screen attitude that are calculated to raise the blood pressure of its audience.

This single-mindedness not only effectively advances the political agenda of network bosses Rupert Murdoch and Roger Ailes but also has achieved ratings domination for the channel over all the other cable news competitors. Fox News on a typical night attracts more viewers than CNN, MSNBC and Headline News put together.

Perversely, Fox’s success has forced the rival cable channels to become increasingly opinionated in order to compete. MSNBC counter-programs Fox by adopting a strident, progressive line that is contributing nearly as much to the polarization of the nation as Fox itself.

Having found its once-successful, middle-of-the-road approach to the news to be commercially untenable, CNN is groping, embarrassingly, for a formula that will enable it to compete. Who knows where that might lead?

While cable news is the most eminent example of partisanship in the news, it is far from the only one. The highly successful Rush Limbaugh has been copied by any number of commentators who, though less articulate, are as abrasive as the master hater himself.

And the web is filled with shrill and irresponsible commentators of every stripe, who seldom let the facts get in the way of the party line or point of view they happen to be pushing.

This isn’t how it always was. And it isn’t how it has to be.

In the days when there were fewer media outlets, publishers and broadcasters for the most part hewed to a generally constructive approach that favored neutrality over partisanship and reasoned debate over unguarded invective.

Back in the day, the nation certainly produced media misfits like Father Charles Coughlin, an anti-Semitic radio commentator in the 1930s who eventually was silenced by the Vatican, and Westbrook Pegler, a Pulitzer Prize-winning journalist in the New Deal era whose conservative politics became so virulent that he was banned from the publications of the John Birch Society.

So, yes, we have had our share of media wingnuts in the past. But here is the difference:

Even though they had formidable followings at the height of their popularity, they never had the power to hijack the national news agenda the way the partisan media routinely do today. (As related here, even the New York Times felt obliged in 2009 to assign an editor to keep tabs on Fox and other “opinion” media.)

In kinder and gentler times, the media collectively had a decency, proportion and civility that have been lost in the modern-day sprint for shock value, political leverage and ratings points.

We need to get common courtesy back in the media. Or, we’ll all be sorry.

Wall St. spanked debt-laden publishers in 2010

Wall Street repudiated the shares of debt-heavy newspaper companies in 2010 at the same time the stocks of generally less leveraged publishers advanced.

In a decidedly mixed year for the 11 remaining publicly traded newspaper companies, share prices last year soared as high as 51% for A.H. Belo while they plunged by an almost identical amount – 50.5% – at GateHouse Media.

As illustrated in the table below, the shares of six publishers rose in 2010 at the same time their peers went south. If you average out the winners and losers, the shares of the industry rose about 1% during the 12 months that the Standard and Poor’s index of 500 stocks gained 12.8%.

But the average performance for the industry is meaningless in light of the wide-ranging performance of the individual stocks.

The principal reason for the sharply disparate performance among publishers is the amount of debt loaded on their companies. Belo has zero long-term debt on its books, while GateHouse is staggering under $1.2 billion in debt, an amount equivalent to nearly 13 times its EBITDA in the last 12 months.

EBITDA – which stands for earnings before interest, taxes, depreciation and amortization – is a common way of measuring the profitability of companies. Financiers divide a company’s debt by its EBITDA to gauge its ability to repay the money it borrows.

Given the uncertain future for newspapers after 4½ straight years of declines that brought total industry advertising sales in 2010 to approximately half of the record $49 billion achieved in 2005, some authorities believe newspapers should borrow no more than one time their EBITDA.

While this goal was beyond the reach of the publishers who borrowed aggressively to expand their empires prior to the financial meltdown, the newspaper companies with the lowest debt generally fared the best on Wall Street in 2010.

As noted in the table below, modestly indebted companies like Scripps (almost no debt), the Washington Post Co. (debt equal to 0.5 times of its EBITDA), Journal Communications (debt of 1.5x its EBITDA) and Gannett (2.0x debt) enjoyed neutral or favorable treatment on Wall Street in the last 12 months. On the other hand, the shares of GateHouse (12.9x debt), Lee Enterprises (6.4x debt) and Media General (5.8x) were sold off. (CORRECTION: Owing to a data transcription error on my part, the ratio of Lee was overstated in the original post; the number publisher here now is correct.)

There are some exceptions to the trend:

:: Shares of the New York Times Co. dropped 20.7% even though it trimmed its debt to 1.8x times EBITDA from a ratio of 3x a year ago. One drag on the shares of the Gray Lady may be the two-tiered ownership structure that gives family members superior voting authority over public investors.

:: McClatchy’s stock rose 31.9% even though its debt is 4.4x its trailing operating earnings. Here is the likely reason for the bounce: While the company looked at the end of 2009 like it might not be able to avoid joining several other over-leveraged publishers in bankruptcy court, MNI appears to have dodged the bullet by slashing expenses, boosting profits and reorganizing its debt.

:: News Corp.’s shares advanced by 3.3% despite an 8.8x debt load. The likely reason for this is that the company’s worldwide broadcast, cable, satellite, movie and other non-newspaper franchises are performing sufficiently well that investors are willing to tolerate a higher debt load.

What's behind the seemingly schizophrenic approach to investing newspapers?

The divergent performance of newspaper stocks in 2010 suggests that at least some investors are willing to put their money on companies with low debt burdens in the belief that the publishers will have the ingenuity, revenue and cash flow to morph their companies into successful players in the digital age.

Heavily indebted publishers, on the other hand, are forced to limit investment in their companies, because they have to earmark a disproportionate amount of their profits to interest payments. To maximize profits to pay their hefty interest bills, many publishers have cut staff, squeezed newshole, curtailed circulation and taken other, similarly counter-intuitve actions to come up with the money necessary to stay one step ahead of their creditors.

The selloff in highly leveraged newspaper companies means that Wall Street is rejecting publishers who are not able to invest in the long-term growth of their businesses.

At the simplest level, investors want to put their money into companies that have the best chances of growing in the future. But many investors probably also fear that the over-extended publishers eventually could go into bankruptcy to offload their crushing debt, a step that would render their investments worthless.

Choosing to be safe than sorry, investors last year steered clear of over-levergaed newspaper companies.