I was fascinated to read earlier this week about Daily Maverick's irrepressable entrepeneur Branko Brkic's plan to launch SA's first iPad daily "newspaper" under the Maverick brand. It's a concept that I've been keen on ever since laying my hands on an iPad and I too have spent many hours doing sums on the back of knapkins wondering if they can be made to work.
When I first looked at Branko's proposition I thought he was bonkers. "There's no way he can make this work," I thought.
But then I took the time to do some calculations based on the assumptions that he has put out there already and from this we can glean some insight into his business plan.
This is what we know:
- There will be a monthly subscription of R395
- Subscribers will have to commit to a two-year deal
- Branko targets an eventual market of between 20,000 and 25,000
- He plans to offer around 40 articles a day
So, lets do some numbers (disclaimer: I am not an MBA, an account, or a business manager, so please challenge my assumptions/calculations)
|iPad cost||Subs p/m||Subs Target||Cost of iPads||1st Year per subscriber||Total 2 Year Subs per sub||Total Subs Revenue less iPad over 2 years per sub||Potential 2 Year revenue less iPad costs||Real revenue per edition|
Well, the numbers produce quite a surprising result and a very healthy potential margin. By my calculations, if Branko can hit the target he has put out there, by month 24 he will be producing revenue of around R3,2m a month.
Since, unlike traditional publishers he has no costs of printing or distribution, his major cost will be the cost of his content. In traditional publishing, cost of editorial as a percentage of revenue, in my experience, can range from between 7% to around 20%. Let us assume that Branko is going to spend big on content (40 stories a day is no small potatoes). So I calculate that he would commit at least 30% of revenue to content which will allow him to ultimately invest just south of R1m a month - which is money you can do something with.
Interestingly, my calculation of his revenue per edition (less the cost of the iPad) comes in pretty much in the same ballpark as a top-end daily newspaper. And he has the added incentive of offering the sexiest consumer technology on the market with this deal.
And of course, a loyal subscriber base of 20,000 could also produce a healthy advertising revenue stream too, although dwarfed, I would imagine, by the subscription revenue.
Of course my calculations don't take into account a very significant marketing investment that will be required for this project and other back-office costs which are part of any business. He is also going to have to access a significant amount of capital to ensure the supply of the technology platform he is promising.
What are the weaknesses in his apparent assumptions?
1. That there are 20,000-25,000 potential buyers for an iPad in South Africa and who would want to lock into such a deal over two years. I don't think this is unachieveable but anticipates a huge growth in the market or Branko's ability to almost single-handedly create the market. There are no reliable stats of iPad penetration in South Africa that I have seen and if there are I would be fascinated to see them;
2.The iPad is not a closed garden. There is no guarantee that users would stay loyal Maverick app users during the course of their subscription or afterwards;
3. That there is a great enough supply of iPads locally to meet his anticipated demand;
4. What do you do when the two-year-deal is over? Offer a technology upgrade to keep the proposition or hope to convert these users to a continuing content-only subscription? If it is the latter, I anticipate he will have to factor in a very significant churn rate;
5. His real revenue per edition is close to $1 a day. Over the long term that cannot be the price per edition for a subscriber as it will be enormously out of kilter with expectations in the digital space so he will have to reduce that cost by either finding significantly higher volumes of subscribers or in-app revenues from advertising or similar.
What are the strengths of his model?
1. He is hitting the sweetspot of the trap that traditional publishers find themselves in as they look to this new platform. Calculations based around brands with the traditional cost structures of print products do not allow for competitive pricing in the app or tablet space;
2. He could have the edge in content investment which could provide him with a significant edge into the future
3. He does not have to restructure an existing business to make it happen.
Overall, I think this is an exciting proposition. I'll be watching it closely. Heck, I'll probably be among the first signing up for the deal. Maverick's content is great and I'd see value in more of it - and I ain't going to say no to an iPad2 either.