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.
Last number that I saw (April 2010), USA Today had a circulation around 1.8M. This circulation was going down by 13.6%. I don’t know if this is a paid circulation or not.
So USA Today circulation is less than 1% of the adult American population (around 220 M 17+). Let’s apply this rule of 1% to 15M iPad owners. We are looking at 150,000 (not 1M) x $40 = $6M/year. Let’s put the CPM at $50 (it is what USA today get for ads on iPad) = $7,500/day/per ad. Let say 10 ads a day = $75,000/day x 365 (if really daily) = ~$27.34M/year. So total is ~$33.4M/year.
As a former USA Today circulator (for many years), I can tell you your numbers are reasonably sound Jeff (M). I can also say USA Today’s circ losses have been the result primarily of lost hotel contract account sales and probably a 10-15% “single copy” (street sales) loss the result of the last price increase from $.75 to $1.00. The 1.8M number is paid circ and is close to reality.
All that said, print readership is dwindling fast for a variety of reasons (many the result of dwinding revenues/cuts in staff/declining quality & quantity of the content – it’s a vicious circle).
Look at the audience Mr. Murdoch would need to court (read young, generally non-news readers) to hit the projections. Again, remember this is a news feed, not a video game or cool Ipod app. The chances of this hitting even 200k in the USA, much less the 500k number Mr. Jarvis mentions appears to me to be a real stretch. UNLESS Mr. Murdoch finds a “Willie Wonka” moment out there and can figure out how to lure the young audience in (clearly the old audience will not go there in large numbers – they’re too busy reading print and lamenting the loss of quality journalism), the eyeballs just are not there.
Jeff J – the “churn” factor mentioned is real and ugly – especially if the issues mentioned in the early reviews are accurate – if there is not extremely compelling content, there will be no big numbers on the plus side, but big losses on the “I’m not interested” let me cancel or die out from lack of interest side. And 10% per year loss is very realistic in the current print world – no reason to suspect they would not be in the online world as well.
I’m not a Rupert Murdoch fan, but I do really want to see someone succeed in this arena. But like so many other failed start-ups, the first one out of the block is rarely the one that wins the race. And that appears to be the case once again.
That said, keep your eye out for announcements of enormous success on the numbers sides. But be wary of any numbers you see. There are so many ways to “cook” the numbers, especially when there is nobody to verify them.
@Rick. I agree. 1% of the iPad “population”is optimistic. I wonder if web numbers are more accurate. Let’s take for example, Le Monde numbers (the French daily): 7M monthly UV, 39,000 paid “web only” subscribers (300,000 paid print buyers). So 39,000 of 7M is: 0.56%. 0.56% of 15M is: 84,000. So readers revenue (84,000 x 40) = 3.36M/year. Let’s keep the $50 CPM and 10 pages ads = $42,000/day x 365 = 15.33M. Total revenue: 18.69M.
Now Le Monde has also 61,000 print sub that asked to access (for free) the paid part of Le Monde site. So total to access to the paid part 100,000. It is a third of the people buying the print. So we can reasonably imagine that The Daily will have a third of the penetration of a print newspaper. So, it is not 1% (like USA Today), but 0.33% of 15M iPad users = 49,500 x 40 = $1.98M/year. If we can the same data for the ads: $9M/year. Total: $10.98M/year.