The future’s bright for online publishing

By Max Slater-Robins on December 4th, 2012

This week marks the end of an experiment that could have changed the face of the media industry forever. That experiment was The Daily, the first “iPad-only newspaper”. The Daily was launched by Rupert Murdoch’s News Corp., which comes with a healthy track record in the newspaper industry, running papers such as the Times of London, the News of The World (now defunct), the Wall Street Journal, the Sun and the Australian Daily Telegraph.

The Daily received over $30 million (£18.6 million) in funding and charged users $0.99 (£0.60) a week, or $39.99 (£24.85) per year for a subscription. The New York Times put subscriber figures at 100,000, with over 250,000 unique readers each month, quoting Greg Clayman, the publisher, as saying The Daily would become profitable in five years.

But the project was killed after just under two years, with Murdoch citing the company’s inability to “find a large audience quickly enough” making the business model “unsustainable in the long-term”. TechCrunch cites a source — a reporter on $40,000 a year — as saying they “saw it coming.”

Economically speaking, The Daily wasn’t in rude health when axed. Revenues, according to some back-of-the-envelope calculations, sat at around $4 million per year (minus $1 million to Apple, of course), without advertising, which consisted of influential partners such as Tiffany & Co., BMW, IBM and the Economist, which would likely have been worth around $1 million. But despite these figures, The Daily was burning through too much money to quickly to be sustainable.

Various publications speculated that it had burned through $10 million — one third of the invested value — in the first quarter of existence. Other reports suggest that The Daily cost almost $75,000 a day to run, which is a phenomenal sum considering there are no printing costs and it only employed 100 people (The Guardian employs some 650 journalists – at least for now).

The recent split in News Corp. meant that other subsidiaries, such as Fox Entertainment, couldn’t prop up The Daily until it became profitable.

However, The Daily’s woes are echoed across the whole publishing spectrum. The Guardian Media Group, owner of the Guardian newspaper, lost $121 million (£76 million) last year, despite the fact that the Guardian’s website is the third most trafficked news site in the world, receiving 8.5 million daily visitors as of December 2012, coming in just behind the Daily Mail and New York Times.

Generating meaningful revenue from these visitors is proving tricky, with only $27.3 million (£17 million) coming from advertising revenue, according to the Economist, putting revenue per thousand visitors at a paltry £7-9 ($11-$14). This leads us to a question: If neither the paying subscription model (as in The Daily) or the free but ad-driven model (as in The Guardian) work, what will?

The answer to this question lies in an unlikely ally: blogs. For a long time, blogs were looked down on by traditional media outlets as crude. Now, however, they are the life-lines of the Guardian and the other incumbents who want to survive. Sites such as Gawker.com, and the rest of the Gawker Media network, are thriving, with some valuations coming in at around $300 million (£186 million), with a high chance of more upward movement.

Gawker is estimated to make around $60 million (£37 million) in revenue per year (out of which, roughly $30 million is profit), a long way off the Guardian Media Group’s $410 million (£254 million) in revenue. But the Guardian is still making a loss of up to $161,000 per day. How then, can the Guardian leverage its vast following? Perhaps adopting some techniques from the world of blogging.

As explained on Gawker’s advertising site, as “a wide canvas for copy, imagery, video and interactivity that showcases your message”, sponsored posts are a powerful way of generating income. A potential advertiser will tell the Gawker team exactly what they want the message to say and then Gawker will infuse a post with their “signature, conversational tone” before publishing.

A $25,000 ad buy, according to the Nieman Journalism Lab, gets you a free sponsored post. If the Guardian — or any other media outfit — ran two sponsored posts per day, at a cost of £15,540 each, it would guarantee £5.6 million per sponsored post slot per year, significantly higher revenue than from Google ads.

So far, affiliate links are only really effectively leveraged by independent bloggers, such as John Gruber, Marco Arment and Jason Kottke. Amazon offers you up to 10 per cent of product value if you shift one of their products. A high traffic news site, such as guardian.co.uk or telegraph.co.uk, could easily shift a blockbuster  it had just reviewed – and by the thousands. Say a new hardback book is £18. The newspaper would receive £2,700 for shifting 1,500 copies.

The Guardian has a book store, which made over £100 million ($160 million) in 2011, but the paper absorbs the logistical costs — shipping, ordering, storing — of each order, seriously impacting profits. But if the technology section of a newspaper reviewed a new Kindle and posted an Amazon affiliate link at the bottom, they could see as much as £50,000 in income on just 5,000 Kindles.

5,000 Kindles sold is a pretty ambitious target, admittedly.

The best and simplest description of advertising comes from John Gruber, who describes ads as a simple deal: If you enjoy something he writes, spend two seconds clicking an ad. It doesn’t cost you any money and it supports his blog, Daring Fireball. The logic is sound

Google, the main purveyor of ads across the web, actively tries to make ads relevant to (a) the site you’re visiting and (b) you. And it does a fairly good job. Sites such as MacRumors and Business Insider all serve relevant ads when I visit. A site like MacRumors receives roughly 2.5 million daily unique visitors who generate around $3,995 per day, or $120,000 per month, just by clicking on ads.

The Kernel offers memberships for £5.50 per month. This strategy looks to be blossoming into commercial success, despite the relatively high price point. Our Nutshell is an influential newsletter, read by many. Traditional news sites would do well to offer similar delivered paid content: by making memberships non-compulsory, The Kernel keeps its articles open to everyone in a way that a paywall can’t.

Other sites, such as The Loop and Daring Fireball, have adopted the membership method with bountiful success too. The member knows they’re supporting the writing they love to read (they also get a few freebies and some exclusive writing); publishers gets to continue publishing, safe in the knowledge there will be food on the table next month.

It’s a depressing time for those working at The Daily, but this week could also mark the beginning of a new approach to online content. The right blend of the methods described here, together with a ruthless dedication to quality and a focused editorial proposition, offers hope for the future. The challenge is staying lean enough to be profitable while still delivering quality.

The blogs are doing it already. Now it’s time for newspapers to wise up, slim down and start delivering the expertise and unique content upon which they built their reputations.