There is not enough evidence for a viable Welsh-language daily newspaper says a review of the Welsh-medium press.
Y Byd would be the first daily Welsh-language press
But the report for the Welsh Language Board said a quick decision was needed on whether £600,000 of public money should back the Y Byd paper venture.
Backers of the daily Y Byd (The World) told the review that it would fail without a decision on support soon.
Welsh Language minister Rhodri Glyn Thomas said he would study the review.
Mr Thomas announced the review during at the National Eisteddfod in August 2007.
He said it would help the Welsh Assembly Government fulfil the pledge in the coalition agreement between Labour and Plaid Cymru to increase funding for Welsh-medium print "including the establishment of a Welsh-language daily newspaper".
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Plans for Y Byd were unveiled last summer. Owners Dyddiol Cyf said it would aim to cover Welsh, UK and international news, attracting 5,000 subscribers for the launch in March.
The review looked at La Nua, an Irish-language daily, which is part of the Belfast Media Group.
The newspaper has two bases, Belfast and Donegal. It has money from a cross-border funding body, some £400,000 over two years since 2007.
Belfast Media Group MG bears the financial loss.
Review author Dr Tony Bianchi examined Y Byd's assumption that people in Wales would buy two papers, for instance the Western Mail or a London-based newspaper and Y Byd.
The review concludes, however, that there is no evidence for such an assumption and that people are actually buying fewer papers not more.
Y Byd's business plan is obviously sensitive but Dyddiol Cyf have given figures to the review.
The paper, they say, would be in the price range 70p-£1.20 and could sell more than 7,000 copies.
Y Byd needs £800,000 in advertising, half of that from the assembly government and wants grant aid in the first year of between £600,000 to a £1m.
There are figures on "grant per copy sold" of the weekly publications Golwg and Y Cymro and the Welsh language current affairs magazine, Barn.
Interestingly, the figures show Y Cymro and Golwg sell more copies in Wales than The Independent.
The review supports the need for a daily Welsh-language newspaper with an online outlet but Dr Bianchi points out that getting it wrong and seeing a new paper start up and fail would be harmful to the whole sector.
The review says that would be a disaster and must not be allowed to happen.
Dr Bianchi concludes: "It is generally agreed that a successful project can bring benefits to the whole sector - a compromised, half-hearted effort will cause it serious damage."
Culture and Welsh Language minister Rhodri Glyn Thomas called it an "interesting and thorough review" and said he would study it carefully before deciding on the next steps.
"The report offers a number of recommendations and suggestions for strengthening the sector and will, I hope provoke discussion within the sector, amongst publishers and Welsh speakers".