Thursday, January 28, 2010

Apple's iPad -- Another Nail in the Coffin of Traditional Media


If you're like me, you watched Steve Jobs' extraordinary performance yesterday introducing a new Apple product that is bound to revolutionize the way we use digital media. Even as a commonly skeptical journalist, I was deeply impressed with both Jobs and the new product, the iPad. What impact is it likely to have on traditional media?

Don't believe the folks who see this as a way for mainstream publishers to get rid of their highest costs and produce content at a profit. Some analysts are contending that the iPad platform enables newspapers and magazines to convey information in new and exciting ways. "Going forward, authors and designers will move away from a static presentation of information into one that is multimedia-based with video and other media content," Needham & Co. analyst Charles Wolf told the Mercury News. Great stuff, right?

For what it's worth, I see the iPad as little more than another nail in the coffin for print media. Why? Unless traditional media begins to charge for its content, the iPad, the Kindle, and other e-readers make it easier for users to access and conveniently read books, newspapers, and magazines at well below the costs to produce that content. When I ran BusinessWeek's online operations as editor-in-chief of BusinessWeek.com, we were among the first magazines to offer subscriptions on the Kindle. Now you'd think that was a great idea: we can charge people for our content, without incurring the high costs of production and distribution.

But for every monthly subscription BusinessWeek sold through Amazon for the Kindle, we received 75 cents--about 15% of the $4.95 cost of a single copy on the newsstand or a tiny fraction of the $49.99 price BW is asking on its website today for a year's subscription. That's right. A monthly subscription to a weekly magazine on the Kindle returned less than a buck to our company--far below our costs to report, write, edit, art, and design the contents of the magazine. Amazon sells a BusinessWeek subscription via Kindle for all of $2.49 a month, a rate that is profitable to Amazon but pretty much a disaster for a traditional media publisher. Though Apple has yet to create contracts with traditional publishers for the iPad, you can expect more of the same.

The obvious question is why would a publisher agree to such a low return? Most enter into these deals under the assumption that something is better than nothing. They also succumb to the pressure of agreeing to unprofitable deals to show others that they are "with it." Who wants to be left behind? If your key competitors are buckling under the pressure to give away their content for a pittance, you're likely to do the same.

Yet, as e-books continue to gain in popularity, more people will choose these digital subscriptions and forego a print purchase, either on the newsstand or via subscription. Without question, the iPad is going to accelerate the adoption of digital reading for books, newspapers, and magazines. It's why The New York Times is developing an app to take full advantage of the iPad's larger tablet size. But if traditional media can't charge a viable price for their products, all these deals are little more than extra nails in the coffin of the print business.

So as much as I love the iPad and all that it can do, I have to confess that it's only going to hasten the death of traditional media--not save it by reducing the high costs of printing and delivering a magazine.

18 comments:

  1. I made a deal with a friend that I wouldn't tweet negative views of the iPad and he won't tweet positive until after we've stood in the store together in 3 months and tried it out.

    But "nail in the coffin"? Might be reaching a bit. This is more likely to go the way of Apple TV (anyone remember that show stopper?) than the iPod. Kindle is "a nail in the coffin." But the iPad is more like "gas in the hearse." It's going to be mixed around with a bunch of other ideas that will play a role in burying traditional media's distribution channels, but the iPad itself has too many drawbacks to lure the masses of readers, and as an ereader it will fail in competition to the eInk models. Lenovo's U1 deserves more attention than the iPad.

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  2. I just looked on the Amazon site and they charge $2.49 a year, not month. Given that they eliminate the need for printing, not to mention all those direct mail solicitations, why is this such a bad deal for the magazine?

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  3. John, afraid you're wrong. It's $2.49 a month for BW on the Kindle. That's no great shakes, but it's not quite 75 cents a year, either. When you consider the marginal cost of delivering each BW subscription via Kindle is zero, a large Kindle base would be a boon to any mag that could attract it.

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  4. pjs, thanks for the correction. It is $2.49 a month, rather than a year. I corrected this in my blog post.

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  5. John, I don't know what the ratio of ad revenue to subscription revenue is for magazines, but for newspapers, the subscription revenue has historically barely (if at all) covers distribution costs. Most of the freight has been carried by advertisers, who no longer need newspapers to deliver their messages to "local" eyeballs. (Then there is the consolidation in national advertisers and WalMart's rejection of Sunday newspaper ads, but that's another story.)

    This is long-winded way to criticize the implication in the post that subscriptions are a cost-recovery revenue stream (and that the single issue price somehow represents true cost of the issue -- if it did, there would be no discounts for annual subscriptions).

    For newspapers, we subscribers have never paid for the content of the paper with our wallets, we paid for it with our collective eyes. We paid for the convenience of having the paper delivered to our door, whether or not that fee actually covered distribution costs.

    Finally, I just saw a report that 50% of the cost of newspapers is printing/distribution related; only one-third is "creation" (reporters, editors, photographers). That probably does not hold true in the magazine world, because you don't print as many pages. Still, it means that there are significant cost savings associated with digital distribution.

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  6. John, your argument seems to boil down to: It hasn't worked so far, so it cannot work. But the Kindle is hardly a great device for displaying magazine content, and Amazon's conditions have been less than favorable to publishers. That's likely to change with increasing competition. The iPad, future Google Android tablets, and e-readers like Skiff and Plastic Logic Que give publishers at least a chance to offer a new kind of reading experience that people will be willing to pay for. Maybe not $5 per issue, but certainly more than $2.49 per month.

    In my opinion, the word "experience" is key: In a world of mostly free content, the only way to charge is to offer something that is more convenient and more compelling than news on websites. Currently, reading online mostly means sitting in front of a PC or a laptop -- it means actively searching, leaning forward, it's almost work. In contrast, e-readers, both as apps and devices, can automatically deliver news and turn the whole experience into a lean-back, leisurely activity. I don't see why people wouldn't be willing to pay a modest amount of money for this benefit. Needless to say, there would have to be many additional features, such as the ability to read a magazine exactly as it appears on paper, interactive graphics, community, videos, etc.

    Finally, the argument that people will be reading even more digital versions, which are less profitable per unit, and abandon lucrative print issues: That may well happen, but a lower price might also attract many new readers. In addition, digital distribution, of course, enables publishers to suddenly reach a worldwide audience at relatively low cost. And if publishers don't like the conditions that Apple and Amazon try to dictate, there are always other, more open platforms such as Android.

    Either way, if tablets and e-readers become the new way to consume news, publishers who read the trends right can only win.

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  7. Apparently this post needs to be longer to pass the spam filter...

    Originally, I wanted to be concise

    Two words: interactive advertising

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  8. The glass may be half full instead of half empty. For a publisher, getting someone to pay anything for what used to be free is a big step. Now we just need to haggle over the price (and the revenue split).

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  9. Hi John
    Forgive the off topic nature of this. I work with Tom Peters and we don't have your most current contact info. We'd like to send you his new book when it comes out in March. You can contact me at shelleydolley@leap7.com or tom@tompeters.com. Thanks!

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  10. The rise of hobbyist journalists shoots holes in online media. The masses aren't into due diligence that much so hobbyist's reporting is often good enough.

    With half the US more interested in consuming media that supports their dogma the value of evidence-based reporting has a narrow market. This is narrowed again by fragmented interests.

    General interest newspapers are doomed online or off. Huge access to media has fragmented our culture (Marshall McLuhan in the 60's). The only hope for making money in media is to go narrow and deep, and then you run into the hobbyists.

    Consumers assemble their own "newspapers" now. Similar to music albums. Make money by selling the news in pieces.

    - Jim Preston
    WineQuesters.com
    Wine travel media
    Santa Clara, CA

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  11. A agree with "ANOTHER nail in the coffin...". Another being the key word. I believe the iPad is going to go a long way in connecting media that is held in your hand, and travels with you to the cloud. I wish this was accomplished via the iphone but it is too slow and too small to be comfortable. The iPad still seems to lack some ideal functions...primarily a camera and ability to video conference. Perhaps the iPad is one of a host of nails in the coffin of traditional publishing.

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  12. You can look it at as glass half full or half empty. You are looking at half empty way. My feeling is that this is the best chance for traditional media to evolve to adopt iPad and other such platforms so that they can get the younger generation to start appreciating quality media. Younger generation is not a customer of traditional newspaper and magazines and this is their best opportunity ever to get to these customers.

    R. Paul Singh

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  13. Media companies have been slow to adapt to new media, and they may be grasping at iPad as life preserver. However, there is a huge opportunity if they think outside of their crusty old boxes: publishers should follow the example of wireless carriers and subsidize iPad tied to subscription discounts. Recent poll showed 76% of NYTimes readers won't pay for content, but that means 24% will. Subsidize iPad in exchange for 2 year subscription would be instant success. Of course, pricing needs to be worked out, but publishing needs bold thinking to survive... or someone will take their place as content providers.

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