With an iPad-only product and a burn rate of $500,000 a week, it could be a tough slog
Let’s do the math.
The Daily, the first news product designed for Apple’s AAPL iPad, launched on Wednesday having already burned through $30 million just to get started.
That, says News Corp.’s NWS CEO Rupert Murdoch, has been “totally written off.”
OK, fine. But now the fun begins.
Producing the thing, according to Murdoch, costs half a million a week, or $26 million a year.
In this business, there are only two ways to offset those costs: Subscriptions and advertising.
Subs are cheap — 99 cents a week. Asked how he would measure success, Murdoch answered without hesitation: “By selling millions of copies.”
But does millions seem realistic? The iPad version of Wired magazine, which has content much more attuned to Internet readers than The Daily, sold 100,000 copies its first month but within five months was down to 23,000.
Giving The Daily the benefit of the doubt, let’s assume it can draw 20,000 subscribers a week at $1 a pop. That’s $1 million a year — before Apple takes its cut — for a publication that will have just burned through $56 million.
So Murdoch has to count on advertising to break even. But can he? Total U.S. mobile ad spending in 2010 was $743 million, according to eMarketer, which expects it to grow to just over $1 billion in 2011.
That’s $1 billion spread out over all mobile devices — hundreds of millions of cellphones to maybe tens of millions of tablets — and across all businesses and app types, books, games, porn, etc. For Murdoch to make a profit, he has to capture about 1/40th of total U.S. mobile ad spending with an iPad-only product that doesn’t have the benefit of the Web driving traffic its way.
And that’s assuming he’s got a product compelling enough to hold readers’ interest after the initial buzz has worn off.
Having read most of the first issue, color us skeptical.
Below: Some analysis of The Daily’s business model by people who know the business better than I, taken from the comment stream of Jeff Jarvis’ Buzzmachine. Their bottom line: Revenues of just under $11 million a year, for a yearly net loss of $15 million.
[Follow Philip Elmer-DeWitt on Twitter @philiped]