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Rupert Murdoch’s Tablet Tabloid: How He Can Pull It Off

With all the frantic hiring of young talent and established editors for The Daily, News Corp.’s new tablet-only newspaper, it’s clear that Rupert Murdoch is trying to create the “tabloid for smart people” that he’s never quite been able to pull off in print. But this isn’t just a gamble on content, but on technology — and that’s the kind of bet the aging mogul doesn’t have a reputation for winning. If he does, he could finally earn the reputation as a digital-media innovator. But how likely is that?

It’s not that Murdoch hasn’t innovated before, in the pre-digital age. No one believed he could launch a fourth major TV network, and now, nearly two decades later, we’re used to saying the phrase “NBC, ABC, CBS, and Fox.” And Fox News went from being a lark to completely dominating its predecessor CNN. But Murdoch’s flashiest online efforts have flopped: See PageSix.com or his ludicrously pricey $500 million purchase of the rapidly deflating Myspace.com. With that kind of track record, outsiders are viewing the tablet newspaper with a heavy dose of skepticism.

Rupert knows that and would love to prove his detractors wrong. “He wants the legacy to save the news industry,” said digital expert Jeff Jarvis. “My sense is this dream is to be able to say, ‘I did it for you again.’”

In another era, Murdoch earned his reputation as a union buster in Britain, freeing his papers from the pricey constrictions of organized labor. Decades later, it’s the disruptive power of the Internet that is threatening the news business, and Murdoch is ready to once again be ruthless, whether it’s putting up a restrictive paywall around his U.K. newspaper sites or investing major cash in The Daily.

He owns the Post and loses 20-plus million dollars a year because he ‘wants a bully pulpit,’” Jarvis said. “With the Times of London paywall, he’s gone from 20 million users to 50 thousand. Apparently, the bully pulpit doesn’t matter to him anymore. Or rather, his bully pulpit is now Fox News.”

In other words, Murdoch’s willing to lose money and risk reaching a smaller audience in order to achieve something historic. And it looks like he’ll have help: The latest online gossip about The Daily is that it will be announced with great fanfare alongside a tandem announcement from Apple’s Steve Jobs. This has iPad enthusiasts salivating — could it be that Apple will announce a much-anticipated ability to sell recurring subscriptions? (At the moment, even though many magazines sell iPad versions, users must buy each issue è la carte.) Jobs was reportedly disappointed with the way the New York Times’s iPad app was launched. Now Jobs gets a second chance with Murdoch’s Daily: Here’s something that you can not only access in a sleek and sexy way on your tablet — you can only access it in its entirety on your tablet.

Of course, Jobs isn’t the only one who may want to stick it to the Times. The Gray Lady is Murdoch’s longtime bête noir, and just as he targeted it with his “Greater New York” section in The Wall Street Journal, he’s apparently trying to wound it with The Daily as well: We hear brass at the tablet newspaper have been trying to poach a few key staffers from the Times and have succeeded in stealing Gabriel Dance, nytimes.com’s valuable chief multimedia producer.

But as much as they may share a common goal, Jobs isn’t actually going to help Murdoch put the product in people’s laps. “Short of him bundling it with the sale of every iPad, there’s still the challenge to Murdoch to sell it, and that comes with a marketing cost,” points out Jarvis. “I just think that the economics of this don’t work out very well.”

What they’re creating is a newspaper app without a newspaper. There are a lot of newspaper apps. Why would you need this one?” asks Michael Wolff, the media columnist and author of the Murdoch biography The Man Who Owns the News. “The thing Rupert has never succeeded at is a newspaper in America.” Wolff points out that editor-in-chief Jesse Angelo and Hollywood editor Richard Johnson are both alumni of Murdoch’s Post. “This is a newspaper business run by newspaper people who have never succeeded, by the way, in making a successful newspaper,” he says. “Jesse Angelo has spent his entire career at a paper that has arguably lost more money than any other enterprise in the history of the media business.”

So let’s look at the margins of this thing for a minute: So far something like 650,000 people have downloaded the New York Times’s free (but oft-derided) app. In the first month, 100,000 people downloaded the much-lauded Wired app, but that number dwindled to about 30,000 a month after that. Figuring in the fact that a built-in subscription renewal and daily-refreshed content could help retain and even draw subscribers, let’s say they’re shooting for 100,000 subscribers in the next couple of years. From the outside that’s an extremely ambitious number, yes, but still only about one percent of the estimated ten million people who will own iPads at the start of next year. (And from what we hear, Rupert has his eye on even bigger readership.) If it were a print newspaper, that number would make it about the 75th largest newspaper in the country, roughly on par with papers like the Palm Beach Post and Grand Rapids Press.

At 100,000 subscribers and a reported 99-cent weekly subscription rate, that’s about $5 million in annual revenue from subscriptions alone (provided people sign up for a whole year). After Apple’s 30 percent cut for selling the actual thing on iTunes, News Corp. keeps about $3.6 million. Not nearly enough to cover the rent, ad sales commissions, technology costs, and salaries of the 150-member workforce (the hires we’ve been hearing about haven’t exactly been $30,000-a-year names). Our back-of-the-envelope math on a digital news business that size puts those expenses more in the $12 million to $15 million range per year — and that’s before marketing costs, which will surely be substantial to convince people to buy this entirely new product, even if Apple will helps with prime iTunes placement.

But this isn’t solely a subscriber-based model. A newspaper to be delivered to the narrow-but-spending-prone subset of Americans who own iPads is of course aimed squarely at advertisers. So let’s make the lavish assumption that those 100,000 people are so valuable for advertisers to reach that they can sell ads worth $2 million a month. To put that into context, Time magazine was selling early sponsorships for its first weekly app editions for $200,000. According to the Times, other apps for print publications were selling ads with some exclusivity for up to $300,000 a month. So, it’s a real stretch. But at that generous rate, The Daily comes close to breaking even.

That would be an impressive feat: Certainly it’s one that would give Murdoch some serious digital bragging rights. The advantage of having that tablet turf nearly all to himself so early on is obviously why he’s in such a hurry to get this project going. He says he’s prepared to lay out $30 million (or, say, $10 million a year for three years), shouldering the lion’s share of the early expenses in order to get there quickly.

But Murdoch’s patience isn’t always his strong point. “Remember he did PageSix.com, let us not forget, which lasted literally a matter of weeks,” said Wolff. “And he gets very impatient with losing lots of money.” Keeping him happy with the product is going to be just as much a business effort as an editorial one: Angelo and his team are going to be under a lot of pressure to create content that people want to pay to read.

And, perhaps most important both financially and philosophically, they’re going to have to want to pay to read it only on their iPads. That seems to run counter to the ethos of the device — which serves to open up access to content in more parts of your life. Like the bathroom, for example. (Some reports say that the Daily content will be readable online through links from blogs and other outlets. Still, the idea of the thing is to exist mainly offline.) “‘Tablet only’ confuses me a little bit. The major use of tablets is web browsers,” says Jarvis. “And so it’s fine to also make a product optimized for tablet, but the websites I go to on the web, I also still go to on my brand new Galaxy Tablet. The important thing about these devices is that they’re a step towards us being connected all the time.” Murdoch’s project is based on the very appeal of narrow access, not the other way around.

Earlier: So This News Corp. Tablet Tabloid Is Probably Something You Should Take Seriously
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Rupert Murdoch’s Tablet Tabloid: How He Can Pull It Off