The iPad: Murdoch's Messiah

I've covered Apple (Nasdaq: AAPL  ) long enough to know that Mac fans tend to visualize Steve Jobs with a halo, hands together, smiling, as if he were the angel Gabriel. A messenger of tech salvation packed in an iDevice. But I never expected such gushing from News Corp. (Nasdaq: NWS  ) chief executive Rupert Murdoch.

"I got a glimpse of the future last weekend with the Apple iPad. It is a wonderful thing," The Guardian newspaper reports Murdoch as saying at a National Press Club event this week. "If you have less newspapers and more of these ... it may well be the saving of the newspaper industry."

Cue the hallelujah chorus.

In all fairness, Murdoch could be right. Early reports show more than 300,000 iPads were sold on day one, and that's just the Wi-Fi edition. A 3G model designed for AT&T's (NYSE: T  ) network is about 30 days away, and should sell at least as briskly as its less-connected cousin.

Both editions make for good e-readers. Good enough, in fact, that New York Times Co. (NYSE: NYT  ) has all but bet its digital strategy on the device. Amazon.com (Nasdaq: AMZN  ) has customized its Kindle software to bring 450,000 potential e-books to the iPad. The digital edition of The Denver Post, my local paper, looked brilliant when I browsed it on an iPad over the weekend.

Why the iPad makes so much sense
Murdoch's gushing for a different reason. He's a newspaperman. He knows the cost of newsprint. At New York Times Co., newsprint accounted for 7% of operating costs during 2009, or roughly $161.5 million. The Gray Lady produced just less than $20 million in net profit last year. Eliminate newsprint, goes the thinking, and profits might double or even triple.

But that could also be wishful thinking. Today's reports from the iPad App Store shows that three newspaper applications are among the top 10 free downloads. Gannett's (NYSE: GCI  ) USA TODAY was fifth, while The New York Times' "Editors Choice" ranked ninth, and Murdoch's The Wall Street Journal 10th. None of the top paid apps feature newspapers or any other media.

I'm leery to draw conclusions from this, if only because we have yet to see newspapers take their best shot at paid iPad apps. "Editors Choice" is a precursor for a paid app that's still to come. Judging The Times' effort before then is premature at best, specious at worst.

Murdoch's taken a different tack. Downloaders of The Wall Street Journal app are asked to pay $18 a month to get access to the iPad edition, almost 50% more than I pay for the Journal and Barron's via the Web. Users aren't impressed.

"Why does every magazine and newspaper think they can charge 2-5 [times] the print version price? Come on ... We're saving you printing and delivery costs. Goodbye, WSJ," wrote app reviewer Shawn C over the weekend.

I agree with the sentiment if not the action. (I'll keep my Journal subscription, thanks.) Newsprint savings could be massive. Mix in interactive advertising using video playback or audio, and News Corp., New York Times, and Pearson's (NYSE: PSO  ) Financial Times ought to be able to generate profits aplenty from the iPad and other high-end e-readers. Pricey subscription packages aren't the only answer.

The inky cabal
But don't tell Murdoch that. His comments to the National Press Club audience sound like a shakedown.

"When they have got nowhere else to go they will start paying. If it is reasonable. No one is going to ask for a lot of money," The Guardian quotes Murdoch as saying.

Much as I like the spirit of his comments, and his stubbornness in standing up for the value of journalism, he's suggesting that once everyone adopts a pay model, once everyone's charging the same, consumers will fall in line, begrudgingly.

Murdoch's crazy if he thinks this will work. Good reporting exists outside the realm of newspapers, and one single-pay model isn't going to save the entire business.

So while Murdoch's right to embrace the iPad as an opportunity -- the business needs as many free swings as it can get -- taking advantage is going to require a shift in thinking, from exploiting the format to exploring it. Both avenues can lead to profits, but only if one does so without angering consumers.

Will the iPad help save the newspaper business? Discuss in the comments box below.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He had stock and options positions in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is cross-eyed from all the newspapers it has been reading.


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