A Whole New Game

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The National's strategy is to invest heavily in talent and technology in an effort to add as much value as it can to a commodity product -- sports information. In addition to paying top dollar for marquee names, The National has poured a lot of money into a state-of-the-art electronic publishing system. This is a system that beams copy via satellite to the paper's hub in New York, where stories are edited and pages made up. That information is then beamed back to print sites around the country.

The National also seeks to outsource as much of the labor and headache of running a paper as possible. Unlike USA Today, which owns two-thirds of its printing sites and fleets of trucks, The National owns none. It will contract for printing and delivery in each market. "We don't want to get into the trucking or printing business," says Tim Lasker, The National's assistant publisher. "Our philosophy is to run a lean, clean machine."

The National also has no national distribution network. It has instead entered into a service contract with Dow Jones & Co. to distribute the paper and process the paperwork. (A distributor does not physically distribute the paper. It acts as an adjunct marketing force, ensuring the paper is reaching the right retail locations in the right quantities and then seeing that returns and payments are handled smoothly.)

In its first year The National expects each copy of the paper to generate roughly 67¢ of revenue (50¢ from circulation, nearly 17¢ from advertising). About 14¢ of that total will be consumed by production (paper, ink, press time), another 20¢ by circulation, distribution, and commission. The National will thus take in about 33¢ per paper. With a projected daily circulation of around 225,000 the first year, that amounts to about $23.2 million. That sum will be more than consumed by salaries and benefits (almost $19 million) and promotion ($10 million). From there The National goes deeper into the red.

General overhead and administration -- which includes such items as capital equipment, rent, free-lance fees, travel, satellite time, and accounting support -- will account for about 23% of gross revenues, or nearly $11 million. This includes the cost of depreciating equipment and an allowance for bad debt. In its first year of operation The National will lose at least $15 million.

Price expects his paper to break even probably around its fourth year of operation. What will circulation be then? Price will say only that the number is somewhere between 500,000 and 1 million. The National's likely break-even figure is about 740,000 (see "Financials," page 5). At 1 million circulation the paper's gross profit should be around 14%. Since The National will be printing the paper at multiple sites and selling fewer than 50,000 copies in most markets, it will likely achieve few economies of scale as circulation rises. Its large variable costs -- production, distribution, administration -- will continue to rise. Above 1 million circulation, though, the differential between revenues and fixed costs begins to widen, as more and more copies of the paper are sold and advertising revenue increases to about 35% of total revenue.

But getting from zero to 1.3 million looks tough. USA Today, after all, has spent about eight years and $500 million building circulation to its present 1.7 million -- and even now is barely breaking even. Price and company, by comparison, intend to spend $100 million to get to 1.3 million circulation and hefty profitability.

Nonetheless, Al Neuharth, founder of USA Today, thinks The National might have a chance. This, after all, is a subject he has considered. "A sports daily was one concept we looked at 10 years ago before we started USA Today," says Neuharth. "I thought the concept was good, but in the end we went for a general-interest publication with an emphasis on sports." He adds: "Our sports section has hooked by far the highest percentage of our readers, maybe higher than the other three sections combined."

Another affirming journalistic force is Dow Jones, publisher of The Wall Street Journal and distributor of The National. Dow Jones not only has clout at the newsstand. Its name lends credibility to The National's efforts; its sales force ensures that bills get paid on a timely basis. In return, The National has something to offer Dow Jones -- the potential for a great fit. The Journal's market research reveals two interesting facts. First, 98% of the Journal's readers read a second paper. Second, next to business news, the Journal's readers are interested in sports.

Every wholesaler that takes The Wall Street Journal in New York, Chicago, and Los Angeles will also take The National. In addition, a good number of wholesalers who don't distribute the Journal have taken The National. This considerable interest is reflected in what is known as the draw -- the number of copies the wholesalers take.

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