Written by Mark Havenner on March 29, 2010.
It was unofficially announced that the cost for subscription to The Wall Street Journal on Apple’s new “must have” device, the iPad, will run a news hound $18/month. This produced an immediate gasp in the media world as to whether this is too much money for an app, when you consider that a subscription for the print version is only $9.
Still, the argument in favor of the premium price is that this is, after all, The Wall Street Journal – not just “any” news app. Another, is that online version promises to have far more features than found in the print version, Also, it will be the very first newspaper app on the iPad and counts for something.
Whereby at first glance the $18 price tag seems over the top – double, when compared with the print version, I began to wonder what should the cost of newspaper apps be on the iPad, how is it formulated and what will the market bear?
Thinking about the standard price formula, I translated some of the costs involved. If we already know that pricing is generally based upon the sum of variable costs, fixed costs, and profit, then without a degree in Business Economics, I may be able to figure this out.
We can assume that WSJ has priced their print to include all of their costs for producing content and that it costs the WSJ less than $9.92 per month to produce it and still make a profit. So, let’s focus then on the costs involved on an app.
Not really knowing as yet the average costs for developing apps on the iPad, it is safe to assume that it will be similar to developing one for an iPhone. According to this discussion, it takes 200 hours at $50/hour on average to produce an app for the iPhone. If I assume that WSJ hires someone at $50/hour to do this, than one only needs to add the application license fee from Apple of $399. As to downloads, iPhone applications, on average, are downloaded 25,000 times per year. It is therefore safe to assume that the WSJ iPad application will follow this pattern and be downloaded that many times.
So here is the formula that will figure out the WSJ app’s ideal price:
(Development Hours X Hourly Rate) + License Fee/Average Number of Downloads = Price (Apple’s Commission) + Print Subscription Price
If we follow this formula, it will cost The Wall Street Journal $10,399 to produce the app, including the license. If they fall into the average, then approximately 2,083 will be downloaded every month. The total cost then per download is $4.99. When you add Apple’s commission, the cost becomes $6.49. Next, when you add in the current price of the print subscription (which theoretically includes the cost of producing content), the price according to our formula should be $16.41.
If you consider the “prestige” category and that and the fact that the app will contain added features, then $18/month makes perfect sense. Also, if WSJ continues to support and develop the app throughout the year, then the costs would stay relatively the same monthly.
Does that mean the market will bear that price? Time will tell but the sticker price is no longer so shocking.