The Daily’s lesson: Charging only a little for your content can’t sustain a traditional newsroom

/// The Daily’s lesson: Charging only a little for your content can’t sustain a traditional newsroom

December 4, 2012  |  Blog

The Daily, a boldly innovative publication – in the platform sense – is over. It’s never pleasant to see a newspaper of any form go under. However, there are lessons to be made from its birth, growth, and eventual demise that have wide implications for the content industry that are worth discussing.

If you are looking for gloat, I will disappoint you.

Here’s the raw truth: The Daily lost too much money and didn’t have a clear path to profitability, or something close to it. News Corp stated this succinctly, saying that the paper’s key problem was that it “could not find a large enough audience quickly enough to convince us the business model was sustainable in the long-term.”

You might ask yourself why that is the case. After all, it hit the much noted 100,000 subscriber mark in July, a number that was both round and impressive. Let’s take a look at what happened.

100,000 fans

Yes, The Daily crossed 100,000 subscribers this summer. That number was essentially released as pushback to rumors that the iPad-only paper was in dire straits. Not so, its then-Editor in Chief said, look at our massive subscriber base.

However, even in July, hedges were put in place: “We are no exception, and to be sure, we will need to continue to evolve, adapt and change in order to compete and be successful,” the paper went on in its statement. However, it did caution to “Pay attention to [its subscribers], not the haters.”

TNW dug into the financial math behind the 100,000 subscribers, and came to the following conclusion given the underlying financial realities of its pricing structure and advertising revenues at that time:

Yes The Daily has an impressive number of paid subscribers. However, its costs, derived from its previous losses, appear to far outstrip its income. Therefore, haters aside, The Daily hasn’t managed to break free from the underlying economics that plague other newspapers.

That led us to the following, somewhat acerbic conclusory note to our piece: “Perhaps [The Daily] can raise its prices.”

Pricing

According to TechCrunch, The Daily had around 100 staff when it went under. That’s after a previous round of layoffs. Note that its structure, according to TNW’s knowledge of its operations, was that it was a top-heavy publication, built in the way of a traditional newspaper’s masthead. Such an editorial format is expensive. Very much so, in fact.

To be frank, it appears that The Daily built its content creation and editing structure along traditional lines, and then attempted to slap a low per-user fee to access its media. High costs and low marginal revenue does not appear to be a winning business model.

At issue here in a material way are the costs associated with selling on certain mobile platforms. If Apple was taking 30% of The Daily’s weekly $0.99 weekly subscription income, that could have tipped the scales against the company’s ability to be profitable, as if we assume that it garnered half its revenue from weekly subscriptions, Apple was hoovering up 15% of its total run rate from that income stream alone.

Key to all of this is the following: selling on mobile platforms is costly – Microsoft’s variable rate that declines to 20% is still a steep cut – and when you couple that with the need to pay a multi-layer editorial complex on top of writers making lowish five figures – for shame – you likely can’t make the numbers add up.

Revenues

Should The Daily have raised its prices? We could abuse the Laffer Curve and guesstimate if the company could have made more total revenue at a $2 per user per week? Perhaps.

However, I would posit that the pricing that the newspaper used was in fact pretty damn smart, and functional, in a certain sense. TNW estimated, back in the days of the 100,000 announcement, that The Daily could be making up to something near $9 million in yearly revenue, assuming very generous subscriber breakdown, high re-up rates, and firm advertising potential. That’s a bucket of money.

However, The Daily was exceptionally expensive. We again turn to our coverage from July:

The Daily’s first quarter saw it rack up over 800,000 downloads. However, in that same quarter, it lost $10 million. That sum, added to the $30 million cost of building the paper to launch, states that The Daily burned through a total of $40 million to exist through birth and its first 90 days in market. Those are non-trivial sums.

If you spend like that, you won’t be able to eat on $1 weekly subscriptions until you have a seven-figure paid userbase. The Daily could have reached that, I suspect, if it had built itself in a much leaner fashion. It did not, however.

The irksome point to all of this is that The Daily proved that there are hundreds of thousands of people out there will to pay weekly for news on their tablet. However, what most people will take away from the situation is that The Daily tried to charge for content, and failed.

That’s a shame.

Link: The Daily’s lesson: Charging only a little for your content can’t sustain a traditional newsroom

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