Digital Quarters

This article was published as a guest post on paidContent.org

There are plenty of naysayers who point out that Rupert Murdoch’s new initiative The Daily — the first major-media publication created expressly for tablet computers like the iPad — is an expensive and risky bet.

But here are four reasons why Rupert is right:

1) Rupert knows the ad model of publishing is doomed. Print and broadcast command the heftiest premiums, and both are at risk of price and volume erosion as consumers cut their ties to offline media. In the digital environment, online advertising is highly commoditized: the explosion of content publishers is outpacing the shift in demand, while technologies target audience ever more efficiently. Advertisers have plentiful ways to reach a consumer.

For his part, Rupert knows that his offline publications are at risk from decreasing ad revenues, and web-advertising models are hardly an adequate solution. Whether it’s out of desperation or vision, Rupert is willing to break through — and lose money in the short term — in pursuit of a better model.

2) Rupert can afford a long-shot bet — and can’t afford not to make one. He’s leveraging his considerable influence by putting something out there that can be truly cutting-edge. A $30 million investment may seem ridiculous for a new publication — and it is. But even with that hefty price tag, this is an insignificant bet relative to the industry and consumer behavior Rupert is trying to move. Throwing money at this is OK, because the possibilities are so great; if The Daily succeeds — or even provides the key insights so his next venture can succeed — it will be worth billions.

3) Rupert has influence to change consumer and industry behavior. He beat his drum loudly last year to get paywalls on the agendas of other publishers’ boardrooms. And it’s worked; just look at The New York Times’ pending move to a metered system. This is what I love about Rupert: Unlike other leaders in publishing, he uses his voice — and his treasury — to influence the industry and consumer behavior. He’s all about trying to get to a more successful model.

4) Rupert has a friend in Steve. Steve Jobs has a lot riding on this, too. Is Apple (NSDQ: AAPL) in the device business or the media business? To date, the lion’s share of its revenue and growth has come from the sales of ever-more-advanced devices. But as device categories mature, Jobs knows growth will get harder to come by: iPod sales grew at just 2% for Apple in 2010, as the venerable device line nears saturation.

In a world where mobile devices are ubiquitous and fiercely competitive, the fat margins of media revenue-share arrangements can powerfully fuel profits. But even more attractive is the tremendous expanse of the pool:  Apple’s media revenues are currently around $5 billion — a paltry sum compared to the global media and entertainment market that PricewaterhouseCoopers pegs at $1.3 trillion.

Apple has already proven that in its remarkably successful closed media ecosystem, the company’s store can earn an estimated 30% of the top-line for media sales — without having to produce any media. This happens when Apple creates compelling devices, exciting user-experience platforms, and fresh marketplaces. For Steve, the upside here is huge. And so he should be happy to tie that upside with anyone who is as crazy-aggressive as he is about getting legions of consumers in the habit of paying for media. And that list has just one name on it: Rupert Murdoch.

A fresh start and a new division — with a new concept and a new design for a new platform — is the only way someone like Rupert can have the freedom he needs to reinvent media for a new age. And only Rupert can do this — without falling into the ruts of compatibility with existing businesses or holdover assumptions from old models.

Kudos to Mr. Murdoch for summoning up the courage, and putting up the money.