Monday, January 31, 2011

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.

8 Comments:

Blogger Martin Langeveld said...

Another potential reason to fail: Too highly modeled on a print product. We don't know this for sure, but the existing descriptions from News is "iPad-only newspaper," and "a new edition shows up on customers' iPads every morning." That's not how digital news product work. I'm checking on the Egypt situation 4 times a day on 5 different websites. "The Daily" is an anachronistic name in a world of continuously-flowing atomized news.

Some of Murdoch's people are smart enough to know this, and are probably building in news updates more frequent than "every morning," but the "daily" monniker is going to tend to mean it's "yesterday's news."

Also, by the way, no inbound links, since it's an app. Not from Google News, not from anywhere. That kills a good fraction of potential readership right off the bat.

And, "if we can just get 2% of iPad owners to subscribe" (400,000 by year-end) is not a business model (and is one of the classic startup formula errors). USA Today's completely free app has had 1.4 million downloads. Getting to even 10 percent of that number with paid app that delivers pretty much the same thing is going to be a tall order.

6:47 AM  
Blogger PernilleT said...

Really great read. I do think Murdoch has to stop Huff Post and Google News from stealing its content. We should all set a standard of only quoting each other in Twitter sizes plus a link. That would really help original content producers. I wrote about it here:
http://pernilletranberg.wordpress.com/2011/01/12/stop-copypaste-quote-in-twitter-size/
best regards
Pernille Tranberg

7:29 AM  
Blogger PernilleT said...

Great read. I do, however, believe that the Daily has to stop others like Huff Post and Google News from copying/stealing its contents. We should all agree to quote each other in tweet-size plus link. That would help original content sites. I wrote about it here:
http://pernilletranberg.wordpress.com/2011/01/12/stop-copypaste-quote-in-twitter-size/
cheers Pernille

7:31 AM  
Blogger Stephen said...

No one buys bottled water! Bottled water does not exist because water comes to us for free! Convenience and guarantee of quality have no add-on value! Is that what I'm hearing people say?

A couple of deals here-

The revenue at the huffington post is 30 million dollars. This is about as large as large car dealership. They're claiming to make a profit, but we can't see their books. So... who really knows.

Patch? Just go take a random sample of 20 of their cities. Find out for yourself how that's doing and how many ads they have.

People who don't crunch numbers say that Murdoch's Times paywall has been a failure because he lost 90% of internet readers. If you've ever looked at a balance sheet, you know that internet makes up about 10% of newspaper revenues. According to the Times, in the first 4 months of the trial, they're revenue from the paywall is almost what it was from just ads... and is growing rapidly. Not that I trust RM a lot... but just crunch the numbers. If he got 50,000 people to pay about $120 a year, then he has nearly covered the revenue he lost assuming standard CPM.

9:10 AM  
Blogger Rich said...

As Stephen said, let's crunch the numbers.

First, the annual subscription revenue for The Daily by my calculation is $52 a year, not $120, so your calculations, whatever they might be are based on an incorrect business model unless I'm missing something. And Rupert Murdoch will not be keeping all of the subscription revenue, he will be sharing a portion, up to 30%, with Apple.

I come from a consumer electronics retail background and 15 years ago I forged a new career as a automotive and travel journalist and now publish automotivetraveler.com. And four years ago, I started publishing a digital-only online magazine Automotive Traveler (http://bit.ly/hs92xR), so I speak with experience in two areas, the consumer electronics success of the iPad, selling 10 million units in less than a year with sales expected to triple in 2011, and in some small way its impact on publishing.

But with a starting point of $500, the iPad is a long ways from being a mass market device. While the iPad is what many observers call a game changer, and one can't underestimate the marketing prowess of Apple, but with 7.5 million sales in the US in 2010 (88% of all tablet sales), that puts the iPad in something less than 7% of US households (7.5 million US iPads sold, 115 million US households). Going on the assumption that Apple will triple US iPad sales in 2011, that would put iPads in about 20 million households. The question that needs to be asked is what percentage of US households will pay $52 a year to get what they can get free from any one of a number of sources, from their local newspaper, multiple sources on the Internet, to network TV.

Crunching the numbers further, here's the answer (this assumes this number of subscribers paying over the full year so they are to a degree inflated).

0.5% penetration – 100,000 subscriptions, $520,000 annual subscription revenue
1% penetration – 200,000 subscriptions, $1,040,000 annual subscription revenue
5% penetration –1,000,000 subscriptions, $5,200,000 annual subscription revenue

The question is, will the number of subscribers be 0.5%, which means very little advertising revenue or will the number be closer to 1 million or about the circulation of USA Today. If its the former, the The Daily has little chance of success. If it's 1,000,000, then it has a fighting chance.

But lets look at iPad subscriptions, with Wired magazine being a good example. In April 2010 Wired sold 100,000 apps at $3.99 each, generating $399,000 in revenue for Wired and Apple. But in November, with a much larger installed base of iPads, and going into the holiday season, they sold a reported 23,000 apps, generating $91,770 in subscription revenue, a decline of about 75%.

One of the problems is that you can buy a subscription to Wired for $10 a year, or about 83 cents an issue, delivered to your mailbox. This is one part of the battle publishers face, literally competing against themselves. But The Daily also faces, as others have pointed out, competition from news outlets like the Huffington Post, which are built on a competing, totally advertising-based model as they give away the content.

The wild card in all of this? How deep are Rupert Murdoch's pockets and how long will he, and News Corp be willing to stay the course to profitability, until he reaches the critical number of viewers that advertisers will find attractive and at what CPM? That is the question that begs to be answered.

Richard Truesdell
Editorial Director, Automotive Traveler Magazine, automotivetraveler.com

6:43 AM  
OpenID journalistmollysmith said...

As you mentioned, The Daily has a design advantage in that it isn't trying to convert a print product to digital. But it will still take the form of a morning newspaper (though delivered electronically), so I'm not sure how it would solve the traditional newspaper's problem of reporting 'old news.' It also doesn't have a base following that would follow them to digital - they must attract all new subscribers.

It sounds like an interesting venture and I'll be interested to see how it turns out. The big question on my mind is what is the new appeal of its content, or is the focus more on the fact that it's all on the iPad?

11:57 AM  
Blogger Stephen said...

Richard,
You and I are talking about two different things. So the following calculations aren't really to your point... but if your interested.
I was speaking of the online subscription to the Times Newspaper in England. I was wrong though in that I did the wrong conversion from pounds to dollars. A yearly subscription is 160-180 dollars, so Murdoch is making even more than I thought. According to the Times, they signed up about 55,000 full time subscribers over and above their regular paper subscribers and about 50,000 other subscribers (mostly one-off stuff). So... at 160 dollars a pop, let's call this about $15M per year. Now... they lost a lot of viewers... but now all they have are viewers with money to spend. More valuable viewers quite frankly. And, they'll have less to pay in computer server fees. And, they're saying they're still gaining online subscribers.
For comparison... Lee Enterprises does about 50M in digital business and has about 50M online viewers. The Times had about 1.5 million online viewers. It ditched about 1.2 million of the free-loaders and got 15M dollars per year, on the low side. In short... good riddance, losers.

10:59 AM  
Blogger Jim Schachter said...

What if it, fundamentally, isn't any good? USA Today meets the NY Post isn't necessarily a formula for success.

7:15 PM  

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