Monday Note

This week, I downloaded the iPhone application of the British newspaper the Independent. It’s a new breed of app, taking advantage of the new features embedded in the third iteration of the iPhone OS. For a daily newsmedia, Push Notification is the most interesting new feature, combined, in this case, with an offline reader. On the iPhone’s main screen, a red badge tells you the number of stories updated and unread since the last time you used the app (see below).

Home page of The Independent iPhone App

Then, inside the app,12 categories work the same way. On a wifi network, in the background, it takes a minute or so (three four times longer on a 3G network) to download a batch of 150 stories updated every day.  Then, the articles can then be read, quickly or leisurely, regardless of your connection. Pretty cool.

There are many reasons to be confident in the development of news on smartphones. Especially with the Apple innovation engine showing the potential to create a brand new sector — as it did in the music business with iTunes. As we speak, 43% of mobile internet traffic is generated by the iPhone device. Competitors have seen the threat and opportunity. RIM’s Blackberry wishes to enter the mobile app market — with an eye on the lucrative specialized news segment — and we can count on the combined impact of Google’s Android (their smartphone OS) and Chrome OS (their netbook platform) due next year. And Microsoft won’t stand still either. (Yes, they were early with Windows Mobile and let their lead evaporate, but they’re taking the situation seriously, they know what’s at stake if they don’t “make it” in the smartphone market.) And Nokia, the cell phone king, hard-pressed to stay ahead in the new smartphone world, but, just like Microsoft, rich, awake and determined.

A recent statistic allows further hope for mobile news. According to O’Reilly Radar, news related apps are by far the fastest growing segment in the iPhone apps galaxy (see chart below).

There are about 1500 apps in the news categories, representing a 2.6% market share… in a very fragmented market.

Another corroboration of the news junkies’ appetite for smartphone applications is the Associated Press’ recently outlined mobile strategy. A year ago, AP launched The AP Mobile News Network by affiliating 1000 newspapers. Today, the latest version of its iPhone application (to be followed by Blackberry and Palm Pre apps) not only takes advantage of the new push notification system but also goes deep-down local thanks to its affiliation program. You select the local news you’re interested in by entering your zip code or multiple zip codes. It is even possible to use the iPhone’s geo-location system to get locally relevant news (read the explanation of AP’s senior VP for product development in Editors & Publishers). AP’s mobile applications have generated 1.2 million downloads (75% for the iPhone). This clearly demonstrates how what was originally a business to business brand is willing to become a consumer brand — which, in turn, boosts the B to B revenue stream.

As of today, none of the media mobile applications are paid-for. No one is — yet — taking advantage of another feature of the Iphone OS v3, that is the App Purchase. (Again, this new feature is barely two months old). App Purchase allows transactions from within the application. No need to get out of the application and go to a web site to purchase what you decided you wanted as you were using the application.
(The counter example is the otherwise very smooth Amazon Kindle app on the iPhone: the Get Books button on the app’s Home page kicks you out of the app and on to Amazon’s mobile Kindle Store page. You look for the book, you buy the book and, when you’re done, you go back to the Kindle app. In theory, the new App Purchase feature obviates this round trip. But, wait, Apple gets 30% if you use its channel. Some will see this as a providence, everything is taken care of, shopping cart, micro-payment for only 30%. Others, like Amazon won’t let Steve Jobs “run the table”.)
In theory, with Apple’s infrastructure (and cash register) at the ready, the App Purchase is the tool of choice for a subscription based system. With the current (and durable) collapse of the advertising on the internet, and the difficulty to push ads on a mobile, paid-for mobile content is undoubtedly a key component of new business models.

Let’s try back-of-the-envelope conservative numbers for a digital newsroom.
- Editorial staff : 100 people. From my own experience, I know we can create a strong daily information system with one hundred, dedicated (no parasitic moonlighting), well-paid, well-trained journalists. Let’s add a 20% overhead ratio for support staff. In all : 120 full-time people.
- Cost per capita. Well. Good question. Last time we ran the numbers with a media CFO friend of mine, we found that, in France, someone making 2500 euros net-net (before income tax) actually cost to the company 77,000 euros per year including his/her chair and computer. Let’s settle for 70,000 euros (100,000 dollars). And let’s consider this amount an average without further distinction between junior and senior staff (we can debate this forever, I know, but these numbers are conservatively realistic).
- Total payroll: €8.4m.
- Let’s add another rule-of-thumb 20% of additional expenses.
- Grand total of cost per year, rounded up: €10m.

Now, the revenue side:

- We assume a real, significant website : 3m unique visitors a month (in France, Le Monde or Le Figaro are in the 5 to 7m range). We’ll use that number on a yearly basis (it’s not absurd to consider that a “unique” comes at least once a month; if not, we have a real problem).
- ARPU (Average Revenue Per User). For perspective, sites like the Washington Post or the New York Times extract between $7 and $12 per year and per web user through web advertising. Going to the pure player field, we’ll be mindful of reality and assume that number plunges to $1, that is €0.7. For the sake of our discussion today, we’ll use €0.7 as the revenue per user per year, our ARPU.
- Revenue for the web site itself: €2 million. (Which is very weak, but I use a crisis model).
- Which leaves us with a deficit of €8m we must offset with something else.

Enter paid-content on mobile:

- Let’s say we use aggressive commercial tactics and manage to convert 20% of our internet user base to a clever (modestly) iPhone app. That is 600,000 downloads. (Remember Associated Press : a million plus downloads in a burgeoning market; in six months, Le Monde’s app was downloaded 500,000 times).
- You get it : in order to complete the revenue stream of our little news operation we need to squeeze about 13 euros net per user and per year, Apple’s commission (30%) not included.
- 
Altogether, we’ll ask our faithful audience to pay us less than 20 euros per year to get our 100+ stories per day, archives, local geo-synced news, services, movies listings, etc.
- How can we do that : a paid-for app (affordable but not cheap, 4 euros), every six months or so an upgrade at the same price, and an App Purchase (or upcoming Blackberry equivalent system for subscription) charge of 1 euro per month and we are in.

Is this a BFD (Big F…undable Deal)? Probably. There are definite signs of economic life in the news mobile digital world. This because we don’t only charge for the news, we charge for the service, the convenience. —FF

Be Sociable, Share!

• 

Related columns:

1. AP and 100 partners to launch iPhone news products TweetIn the previous issue of the Note, we run a story titled “Why publishers should grab the iPhone business“ Today, I’m glad to report that the Associated Press did it. AP announced last week that it was lining up to 107 partners to make stories available for the iPhone. The service will deliver local news [...]...
2. The News Cycle Heartbeat TweetHow do mainstream media and blogs interact? How do they feed each other ? Everyone in the newsmedia would love to get a better view of the mating dance. A few weeks ago, scientists at the Cornell University unveiled a thorough analysis of the relationship between the two universes. Borrowing from genomics techniques, they dug [...]...
3. Mobile publishing — Why publishers should grab the iPhone TweetNews publishers remain obsessed with the question: what will be the main distribution platform for their contents, and what will be the subsequent business models? For clues, let’s zoom in the iPhone’s recent performances as well as its immediate prospects. The smartphone introduced a year ago by Apple has become the tool of choice for [...]...
4. Mobile First, and a Mag TweetTwo French journalists come to me with a question: which business model for their new project? They are about to resuscitate a fairly well-know trade journalism brand, planning to go mostly online — and marginally on dead trees. As an answer to their new investor’s questions, they first considered the “tried and true” formula: free [...]...
5. How to make readers pay for news TweetAn idea is gaining momentum: online readers must open their wallet. In recent weeks, several suggestions for moving from wish to implementation have popped up. The latest one comes from Google. The company proposes to give a boost to its not-so-successful Checkout service by harnessing it to online newspapers interests. Quite a change here. Only [...]...