Daily economics

I have not seen News Corp’s Daily (I was invited to the preview last night but travel, exhaustion, health, weather, and thus prudence had me take the train home and I couldn’t get in today because of the ice). So I have nothing at all to say about the product. I am trying to get my head around the economics and I hope better mathematical and business minds than mine will analyze what it will take for the Daily to succeed.

Rupert Murdoch said the Daily went through $30 million in development costs that are already written off. He said operating costs will run $500,000 a week. So in the first year, the Daily will cost roughly $55 million. That’s a lot. For comparison, Portfolio went through somewhere between $40-100 million. I said we’d never see another publication launch of that scale. I was wrong. Also for comparison, News Corp’s abortive aggregator, Project Alesia, went through a reported $30 million.

Let’s say that circulation covers the costs of the Daily — since getting consumer revenue is the real point of the exercise — and that advertising is profit. Note well that I have *no* reason to believe that’s News Corp’s strategy. It simply makes it easier to illustrate the economics and the questions I hope other reporters tackle.

The Daily is selling for $1 a week or $40 a year.

So how many subs would they have to sell to break even on the $500k/week cost? (Note that’s break-even on an operating basis, not on the total investment.) It’s a bit more than 500k subs at $1 each for the reasons below.

Figure that Apple is taking something less than its normal 30% share for the privilege of having the Daily. Murdoch said that it will be ported to all major table platforms but then he said that last year, this year, and next year “belong to Apple.” (I have no idea whether he means that metaphorically or contractually.)

Figure also that there will be churn as there has been in iPad magazine sales. That means — as it always does with sub sales — that one must sell new subscriptions to replace cancellations to reach your magic number. Let’s say the Daily loses–and I’m pulling this number out of a hat– 10% a month, which it needs to replace. So if you’re selling 100k this month, you need to sell 110k next month to get to 200k and 120k the following month to get to 300 and so on.

I’m not qualified to run these numbers; I wish someone with circ experience would. But to pick another number out of the hat, let’s say that the Daily needs 750k net subs to hit cash-flow break-even because around 25% of circ revenue goes to Apple and half the subs are sold at the 20% discount. With churn, they’d need to sell a total of up to 1 million gross to reach that number while accounting for a subscriber acquisition (marketing) cost of, say, $10 (which is light but given Apple’s promotion, probably not unreasonable).

I picked 750k because it’s somewhere in the ballpark — Murdoch said he eventually plans to sell “millions” — and also because it leads to an easily rounded number for marketshare: The Daily would capture about 10% of the installed base of iPad owners today (though that’s a worldwide number, so the U.S. figure would be higher). That’s pretty high.

For comparison, Wired sells about 22k issues a month on the iPad, down from a debut of 31k, Glamour sold 2,775 in November, losing 20% a month from the prior two months (even as iPad sales soared)–note the higher churn number than I used above. So the Daily would need to sell roughly 34 times the sales of Wired. But it is daily and not monthly.

Now switch to advertising. The market will be small for sometime. I’m told these days that major brand advertisers won’t pay attention to a site until it gets 3 million audience. Then again, the value of tablet advertising is supposed to be high and advertisers like the experience. I also wonder whether the ads will also go through Apple and it will again take a share of a quarter to a third. There are so many variables in advertising–unique users per day; time spend and pages and ads views; avails per page; measurement of ROI (is there click-through?)–that it’s nigh until impossible for me to guess at the revenue. But I throw this out, again, in hopes that someone will tackle it.

Once more: I have NO figures other than the two Murdoch gave. I have ONLY questions. I hope the Daily is profitable; I hope any new news venture is profitable. I’d simply like to have a better idea of what it will take to get there. Anyone want to help? Please DO tell me where I and my assumptions are full of crap and please DO add experience and data. I just want to understand the dynamics of the business.

: Folks on Twitter are saying that I say the economics of the Daily don’t add up. I am not saying that. I simply want to see the addition.

  • Jeff,

    When I saw the title of this article and some of your tweets, I wanted to criticize you for being a negative Murdoch-reactionary once again. However, after reading this post, it is solid and asks some good questions. I know, based on seeing your Twitter stream and listening to you on This Week in Google, you are skeptical about Murdoch’s ability to ever get it right in the new media age.

    You are asking the right questions and it will be interesting so how this develops.

    Do you think it is bad for the future of content on the Internet if the Daily succeeds?

    Shawn Roberts
    @shawjroberts on Twitter

    • Thanks, Shawn,
      Yes, I want to figure this out. The more open this is, the more it will help everyone.

      • Probably worth pointing out even if it turns out to be successful, other operators can enter the market and undercut the product in terms of costs and price.

      • Andy Freeman

        > undercut the product in terms of costs and price.

        Regardless of what you think about Murdoch, that would be good.

  • LJL

    How does The Daily get to profitability? More tablet penetration=more potential subs. The subs numbers are based on current ipad penetration. Murdoch is betting that tablets will be ubiquitous, thus your comparison, while true today, is meaningless tomorrow after Apple sells an additional 50 million units.

  • Apple’s need to take a cut of everything which happens on the iPad might have serious repercussions for it as a media platform. A 30% tax on every book, subscription, or sale is a lot, especially considering they aren’t really doing anything other than collecting a rent.

    I’ve begun buying all my books for the iPad on the Kindle store. If Apple bans the Kindle app, like they are doing with the Sony ebook app, I’ll probably buy a Kindle at this point.

    30% off the top of subscriptions might make the difference between success and failure of a publication.

    The iPad has a huge lead in the market. If they ever lose that lead, I wouldn’t be surprised if this is a major reason.

    • cm

      Don’t consider it a tax. Consider it a retailer’s fee. Your local store likely gets as much for selling magazines etc to the public. The store does not take on any risks either. Unsold magazines are taken away by the distributor.

      While 30% off the top of a subscription might dent the income from a single unit, that is likely more than compensated by volume. Selling two subscriptions at 70% is better than getting full price for one. Selling three subscriptions at 50% would be even better.

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  • Matt Volk

    Per their latest financials, Apple has sold 14.8 million ipads through the end of 2010.

    I’d be surprised if Apple is taking more than 10% off the top of the Daily subscription price. Half would be for payment processing and the other half or so is profit. Which I think is about what Apple makes on iTunes music sales.

  • Charles Balazs

    One question that arises when talking about churn and subscriber attrition is how easy Apple makes it to actually cancel. As anyone who’s ever tried to get a refund for an app knows, Apple makes it nearly impossible (both in T&Cs and in mechanism) to get money back.

    As with print newspapers, The Daily may hold its subscriber base simply through the apathy of those who subscribe, who don’t want to go through the hassle of trying to cancel.

  • Bill Day

    Jeff –

    Your thought process on the subscription side is spot on – though to echo an earlier post the effective penetration level will fall as the tablet market expands.

    As for advertising the 3M rule doesn’t apply here – this is a high profile pub from an established legacy media company. They won’t have any difficulty attracting marquee brands – at least not at first.

    So, let’s assume an $8cpm – higher than avg for online, lower than current tablet effectives. With 1M circ that works out to $41,000/day in revenue per ad avail. They would only need 11 ad avails sold across 80% of available inventory to break even at that rate. Doable for News Corp sales teams with a shiny new toy.

    But these are high touch, high sale advertisers – total volume will be a problem over time. The challenge on the ad front is declining effective yields combined with decreasing return on sales effort. In other words, you’ve got to work harder to get fewer dollars. That’s the trap of legacy media companies – they can’t cut costs or innovate fast enough to stay ahead of falling ad yields.

    And that’s where The Daily breaks down – because at it’s heart, it’s a legacy media operation playing at being a digital business.

    • How do you arrive at $41,000/day in revenue by ad avail with a $8/CPM and 1M circ? 1M/1000×8 = $8,000. No?

      • Bill Day

        thanks for catching my egregious math error

        8k is obviously correct –

        here’s what I came up with

        1,000,000 circ/1000 x $8 = 8,000 per ad avail/per day

        Assuming 80% sold inventory across 365 days gets you to $2.3 annual value per avail.

        That means you have to sell 11 ad units per day to cover the run rate.

        Since my first post I’ve had a chance to play with The Daily, looks like they launched with only full page units. Certainly easier to build, but I wonder about consumer engagement. Seems pretty easy to simply flip past the ad in the carousel and never engage with it at all. Of course the same could be said for more traditional forms of advertising as well.

  • Aaron Bailey

    Factor in potential iPhone/iPod Touch subscribers and the numbers start to look at bit better. The user experience on a much smaller screen would be a problem, but I’d consider subscribing on my iPhone.

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  • I think this whole project is meant to be a loss. I believe Murdoch sees the iPad as a medium he needs to understand well. By going in big, he’s going to fail quicker and learn faster. News Corp is not interested in having one profitable publication, they are interested in having 30 profitable publications.

    Ultimately, what News Corp, and the team working on The Daily, will learn will assist them with launching 30 new publications that will be closer to profitability than anyone else, because they went in whole hog rather than dipping a toe in the water, like Conde Nast is with Glamour.

    We should watch to see The Daily’s management team scatter to a dozen new News Corp projects in a couple years. Then Murdoch’s venture will begin to reap rewards.

  • carrob

    I love your work, and have been an avid subscriber to TWIG, think that it’s great.

    But I do question the maths of this. If you say it costs $500k a week to run, it means that the annual operating cost is $26M p.a not $55M? I assume you are including the initial setup costs, which should (really) be amortised over a number of years. That changes the economics of the entire proposition.

    That said, I find it interesting that as an Australian I was unable to buy the app here in Australia. It’s restricted to the US store. Its kind of understandable, but if Apple are giving news a free kick, they should be taking advantage of that and making it a global product with the full force of News Corps resources behind it.

    • Try reading again. I was adding up *first year* cost, including operating cost and development cost. If the thing doesn’t work, that’s what will be used as a cost basis, as has happened with, oh, a few media creations lately.

  • 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.

    • Of course, I assume that all readers see all ads.

    • rick sass

      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,
        Thanks. Great comment. Just what I was looking for: experience and expertise and fact-checking.

      • @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.

        Enough numbers!

  • One thing I just don’t get: The Daily is only available in the US store. Excuse me? The whole world speaks English, but Murdoch is excluding them? How weired is that?

    • That The Daily is available only in the US, but not other English speaking countries, isn’t that weird. There is more to ensuring a publication is appropriate than writing it in the right language.

      From the two larger sections of the issue of Thursday 3 Feb 2011 (courtesy of http://thedailyindexed.tumblr.com/):

      News section: 12 items (excluding the cover), of which 4 are not specific to the US (Egypt and, er, Mars). Of the remaining eight, I’d say three have had or would have a bit of attention outside the US. To take just one of those three, I’m sorry to say most of the world has moved its interest away from Gabrielle Giffords.

      Sports: All 11 pieces specific to the US.

      Then there’s language — as one example, UK papers don’t have a “Sports” section, they have a “Sport” section. And tone — most of those articles would be written very differently if they’d appeared in a UK publication. And very differently if they’d appeared in different UK publications.

      You can repeat this exercise for all those other countries that speak English, but aren’t the US and aren’t the UK.

      But we should not see today’s The Daily as the final product. The News Corp team have created a functional shell into which many different kinds and versions of content can be downloaded to different groups of people. We’re not there yet, but it will come. The content will evolve. And so will the shell.

  • Andy Freeman

    > I hope the Daily is profitable; I hope any new news venture is profitable. I’d simply like to have a better idea of what it will take to get there.

    That sentiment has been a constant at buzzmachine yet the haters insist that Jarvis wants journalists to work for free, hates profit, etc.

    • Oh, no, I love profits. Profits are what pay for journalism.

  • Michele

    I think the deciding factor will be the content.
    So far in the first two issues the content just plainly sucks.
    TWO news stories today (Egypt and Snow storm in the NE).
    Are you kidding me? Nothing else happened?
    A soft story about Giffords, few stories on “Art and Life”, Flash news story on Lindsay Lohan?!?!? Quite a lot of SuperBowl.
    Are you kidding me? It makes the Daily News look as intense as the New York Reveiw of Book.
    It might be technically well done but it’s completely empty.
    Did they not hire 100 journalists? What are they doing?

    I’ll give it a chance until it’s free and then is it’s still like this just trash it.

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  • gregorylent

    will no one mention how crappy the ipad is for reading newspapers or magazines? it is equivalent to listening to a symphony through a walkie-talkie.

    • Timothy Holmes

      Or maybe one of those unsuccessful Walkman things?

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  • From a purely tech-savvy consumer point of view, I’d like to see Murdock get this model right, for the sake of the entire industry.

    I like well-written and responsible journalism, good graphic design in the ad work and all the “good” reasons we used to enjoy newspaper reading.

    However – and this is where I will sound like I negate hope for digital newspapers – I want it to be as open and cross-platform as it can be. Get it to everyone.

    More eyeballs on more devices, Mac, Android, linux, windows devices. This will cost money, but it will also make money.

    I own two nooks and gifted a kindle for a family member excited for up-to-the-minute digital reading material, books news journals, etc.

    The market exists, but consumers will get weary if they have to have a confusing number of formats or cost prohibitive pricing for digital newspaper delivery which in many ways, folks have already disowned/unsubscribed in its hard-copy edition.

    Murdock’s not my personal hero in business or politics, but he’s in a really unique place to emerge in victory if he gets it together, sooner rather than Later.

    If Murdock can just “get this right” with his catalog of media properties, he can sell its viability in the industry.

  • Jeff,

    I’ve always believed in the NNO ( new news organization) model that you’ve been promoting for years!

    Watching The Daily from 1,000 feet it’s so dissapointing to see that old guarded media is partnering up with a newly veiled new guarded media ( in Apple) to have users pay for content that the can already link to for free.

    Yes, the platform of the IPAD/The Daily is compelling, rich and chock full of technology ( although where’s the bloody Table of Contents!) but it’s ironic that there are aggregated stories and images ( AP , New Yorker, etc) to fill the pages for this publication.

    As you’ve said, sharing is caring mentality for content generators in this new link economy we need to embrace and it’s so frustrating that Murdoch is throwing his $30M behind something that is far from groundbreaking in terms of content but more about having people pay for news that I can find on his sister property NYPOST.com and to some extent the WSJ (which by the way you can pay for the print AND get full access to online) which are far more reaching and thorough with credibility each on its own right AND ITs FREE!

    Believe me, I’m not saying content providers should not be compensated but the metrics around what The Daily is trying to produce and how other models are producing revenue are vastly different. Even today with your Tweet mention about the AP setting up a tracking content for monetization committe ( or something to that effect) seems archaic and overly bearing and too little too late. I give them an A for the effort but an F for thinking that the world needs to go on with and AP subscription to their service ( didn’t CNN drop AP and create their own?) and if caught using content from them will be hunted down like some kind of digital criminal!

    Look, I support any kind of digital venture that promotes journalism but The Daily, to me at least, seems like a half-baked attempt to generate revenue via paid walls, closed access and creating a system that has so far proven unsuccesful in today’s fast-paced digital linked, hyper local economy world!

    By the way, isn’t the name in and of itself sort of an Oxymoron? It should have been called The Digital Seconds ( updated every morning LOL)

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  • […] While the iPad is considered a new frontier, apps may present a way to harkan back to those longed-for pre-digital days when magazines and newspapers could charge unequivocal fees for subscriptions.

    Unfortunately for The Daily, the Internet has not gone anywhere, and the paper had to preempt its content’s free availability on the net by making articles shareable and searchable online. […]

  • I saw the demo/launch of the daily and thought it quite intriguing. I wonder 2 things: 1) Will a ‘walled garden’ of content be relevant today and tomorrow? 2) Based on the figures in your post, will the economics make The Daily viable?

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