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The iPad business model for news: Strategies publishers must embrace

There’s been a lot of hand-wringing in the journosphere about what newspapers ought to be doing vis-a-vis the iPad. If publishers adopt their usual defensive stance and take a slow approach, they’ll miss the iPad boat. Or the iPad rocketship, as the case may be.

Kenneth Li of the Financial Times reports that “Newspaper and magazine publishers are stumbling over key issues such as sharing subscription revenues as they consider deals to offer digital versions of their products on Apple’s upcoming iPad digital media device.” Apple’s 30 percent take of any subscription revenue is a far better deal than the 70 percent many publishers forked over to Amazon to be on the Kindle, but some publishers are balking at Apple’s deal. “Thirty percent forever changes the economics,” one newspaper exec complaned to Li. “You can imagine we feel less good about it.”

In addition to the revenue share, publishers are kvetching about control of information. Apple intends to hold on to customer data, as it does with iTunes, and to share only sales volume with publishers. One unnamed metro newspaper publisher told Li: “Is it a dealbreaker? It’s pretty damn close.” Magazine publishers, despite some similar concerns, have already formed a consortium (Next Issue Media) to publish their content on the iPad, and Condé Nast has begun announcing titles that will appear on the device.

But Richard Tofel of ProPublica, blogging at The Daily Beast last week, opined that “the iPad could kill newspapers” because (italics added):

…online advertising revenue, on a per reader or per impression or any other relevant basis, lags so far behind print revenue that it seems destined to never catch up — never to come even close. Thus, it has been clear, for perhaps three to five years, that any sudden conversion of all print readers to Web readers, while greatly reducing costs, would reduce revenue even more, deepening losses at unprofitable papers and throwing those that remain profitable into losses — losses that would likely be impossible to reverse except through huge further expense cuts, especially in newsrooms.

(For a more optimistic view, see “Can Apple’s iPad save the media after all?” by Wired’s Eliot Van Buskirk.)

Over at Gawker, Ryan Tate claims to have it on good authority that a “heated turf war” has erupted at the Times over the pricing of its content on the iPad. The digital folks at the Times, he says, want to charge $10 a month (less than what a Times subscription costs on a Kindle), while the print managers want to charge $20 or $30 a month. The two sides, Tate says, are appealing to the executive suite.

It’s an argument that will make little real difference. Tofel is correct that current online monetization of news is too low. But the problem with his line of thinking is that nobody is talking about a “sudden conversion of all print readers to Web readers.” It’s an interesting exercise in speculative accounting; one that’s been done repeatedly over the years, and one that discovers every time that the numbers won’t work for desktops, laptops, iPhones, and now they won’t work for iPads. No surprise. The alleged argument between the print trolls and online geeks at the Times won’t make much difference. And the whole industry faces the same challenge.

In reality, however, the Times will print as usual tomorrow morning; its readership will not move to the iPad overnight. So far, the conversion of readers from print to digital formats has been gradual. New devices like the iPad may accelerate the trend — they’ll bring a major transformation in how people use the web, but it won’t be an abrupt transformation. So the real challenge to publishers is to manage through that transition, to stay ahead of the curve, and to find the right model at the other end of the rainbow. This is hard enough, but it’s easier to deal with a gradual shift in consumer habits than a sudden one.

And the real mistake in Tofel’s thinking is to assume a linear continuation of current trends. Online advertising, he says, “on a per reader or per impression or any other relevant basis, lags so far behind print revenue that it seems destined to never catch up — never to come even close.” This assumes that only standard revenue models (advertising and subscriptions, at currently typical price points), and only extrapolations of current trends, are possible on a new device like the iPad. This is like the original assumption of Alexander Graham Bell that people would use the telephone to transmit brief telegraph-style messages.

In reality, the iPad will be disruptive, and the real question is this: How will the iPad transform digital behavior (again), and what should publishers be doing now to be players in that transformation? Multiple disruptive developments in the history of the web have had unexpected transformative effects on user behavior: think of Facebook (now used actively by 116 million U.S. users for an average of seven hours a month, far beyond what anyone would have predicted when it was launched just six years ago), smartphones (now used by 17 percent of U.S. adult cellphone users and growing rapidly) and smartphone apps; and the whole notion of the mobile web, the use of which is likely to overtake the old stationary desktop web, worldwide, within three years.

The iPad’s effects on how people use the web (and other media) will be similarly profound, and similarly unpredictable at the outset.

Nonetheless, I’ll hazard a prediction. I believe the biggest transformation that will be wrought by the iPad will be to bring an enormous increase in online shopping.

Even before anyone knew for sure what features would come with Apple’s iPad, mobile shopping was projected to zoom to $119 billion by 2015 (from a mere $396 million in 2008 and $1.2 billion in 2009). With the iPad coming on the scene shortly, it’s likely the mobile shopping growth curve will far steeper, because the iPad is a far more attractive platform than any smartphone for showcasing merchandise and services, and its portability will allow it to claim a far greater portion of leisure time than any deskbound computers. Consumers with iPads will be connected to the web in far more places with far more engagement (relative to smartphones), presenting far more opportunities for direct marketing and sales than any previous interface.

While the iPad is conceived primarily as a media consumption device, marketers will see it as a godsend. Direct mailers are already nervous. (Echoing Tofel, they’re asking, “Will the iPad be the nemesis of direct mail?)” The whole thrust of the last 10 years of web development has been to move consumers and brands closer together — to link consumers and marketers in direct conversations on many platforms ranging from Twitter and Facebook to email, branded toolbars, coupon distribution sites, and other personalized tools.

As Rick Edmonds of Poynter reported the other day, this trend is having an impact on the revenue newspapers derive from advertising inserts — which are really the last area where, until recently, they’ve maintained some semblance of monopolistic pricing power, and certainly a high profit margin. But marketers, with better ways of measuring response rates and ROI across marketing platforms, are now finding them too costly. Edmonds reports that the NAA is looking at ways to combat the trend, but he worries that “the difficulty of getting newspapers to act collectively on anything [is] a huge and recurring issue.”

One thing is for sure: No retailer, no marketing executive, no ad agency anywhere is looking to spend more money in any part of any newspaper. (Well, maybe you could find a few.) By and large, they’re looking to build more direct connections with consumers on digital platforms. And they see the iPad as the Next Big Thing.

So what is a publisher to do? My suggestion is: Build a strategy around the assumptions that over the next few years:

  1. The mobile web will be ubiquitous — upward of 70 percent of adults will be connected to the web on mobile platforms virtually all of their waking hours.
  2. All forms of media consumption will move to mobile platforms, especially the iPad and its competitors and successors, at an increasing rate.
  3. Marketers will shift their budgets to mobile platforms (and out of both newspapers and direct mail) at an increasing rate.
  4. Consumers will respond strongly to mobile pitches in the form of ads, video, social recommendations, online catalogues, deals-of-the day (like the explosively growing Groupon — an operation newspapers should be partnering with), and other channels yet to be invented.

To play, publishers (both magazines and newspapers) must adopt a number of new strategies. They must:

  1. Embrace the mobile web and the iPad. As Ken Doctor said about Next Issue Media, the recently-formed tablet publishing consortium, publishers still have a chance to get this one right (“A Digital Do-Over,” Doctor called it), after having misread signals and failed for the last two decades to catch the online waves consumers were riding. The opportunity for publishers here is to lead their audience, rather than belatedly to follow it. This means walking the walk, talking the talk, from the board room to the mail room.
  2. Reinvent their content for the mobile web and the iPad. As Doctor also notes, this is easier for magazine folks, with their visual orientation and design smarts, than it will be for newspaper stiffs. The words “reinvest in our business” need to return to the newspaper world. Let’s devote some of those hard-earned rising profits to acquiring some innovative design capability.
  3. Challenge their journalists to develop new streams of content that will attract new readers (like all those digital natives who never even started reading news in print), and built new relationships of trust with them. (This will take some investment, as well.
  4. Work with Apple and other mobile platform entities to enable content and advertising personalization. If Apple insists on “owning” the customers, in terms of having the billing relationship, that’s one thing — no different from outsourcing delivery to independent contractors who until recent years “owned” the print customer relationship at most papers; or ad agencies who own the primary relationship with many advertisers. But if publishers are to be players in the mobile marketing game, they must be able to deliver individually targeted marketing messages, and that means having some ability to identify the reader and respond (with permission) to the reader’s profile and preferences.
  5. Work with marketers to invent new ways to interact with customers: to facilitate conversations, to blend news, social media and brand messages, to actually sell stuff and facilitate transaction — in short, to leverage those new relationships of trust into brand new streams of revenue.

If they can do that, the rumored argument at the Times about iPad subscription pricing is beside the point, and over time, the Times and most newspapers will be able to move their readership from print to mobile while maintaining, or even growing, a healthy bottom line.

Addendum, Feb. 22: Frederic Filloux has posted a Monday Note on iPad opportunities for publishers. He makes a point similar to my strategy No. 5 with regard to the need for Apple to provide publishers with customer usage data:

But the key issue is marketing data. Apple generated a great deal of frustration for iPhone application makers by refusing to handle any data other than basic sales figures. That won’t work for the media industry. Publishers are used to pore over tons of numbers from their subscribers databases; they now data-mine internet traffic numbers. When selling iPad applications, they’ll need to know who gets them, in which markets, what parts of the content readers actually look at, for how long, all of the above broken-up demographics, location, time of the day/week, etc. If publishers want to switch to a test-learn-adapt mode, Apple ought to handle such data. By cutting off access to marketing information regarding its Kindle’s content sales Amazon shot itself in the foot. Apple must avoid this. It should soften its paranoid stance, and help the publishing industry embrace this potentially huge market. It’s in everyone’s interest.

Addendum, March 8: For an expanded version of the strategies outlined above, please visit News After Newspapers, where I have posted a white paper, “iPad strategies for publishers,” based on and expanded from the content of this post. The paper was prepared for distribution to members of the Digital Publishing Alliance at their March 7-9 meeting at the Reynolds Journalism Institute in Columbia, Mo.

                                   
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  • http://toughloveforxerox.blogspot.com Michael Josefowicz

    Comprehensive, informative with just the right suggestions. As usual.

    My only disagreement is “All forms of media consumption will move to mobile platforms,” I understand that as a long time Print evangelist I have to tread carefully… but.

    The media is not a zero sum game. The rule has always been the more the more. Print with 2d code connection to the internet is a repurposing of one medium to be able to grow in a new environment.

    A couple of things I think you should look at on twitter @tweetbkz and @PersonalNews Niether have the 2d code piece, but I’m pretty sure they or a look alike will.

    Another thing to check out is Google Goggles demo a translation feature. You read German goes to the Cloud and delivers English. It’s still X away from wide release, but coming.

    The point for Print is that your camera has to “read” the words in hard copy – that means print.

    Lots more on twitter. But I don’t want to over extend my welcome. I know that Print evangelists can be so overbearing at times.

  • http://newsafternewspapers.blogspot.com/ Martin Langeveld

    Thanks Michael, I’ll check those out. But the words “at an increasing rate” should really remain part of that quote; I didn’t say or imply that everything moves to mobile, period. I agree that as we trend toward everyone having one or more mobile computers on them at all times, the opportunities for leveraging more value from print multiply as well. Desktops were forecast at one point to bring the paperless office; instead we have the office that chews through more reams of paper than ever. At least mine does. But I do think that burgeoning mobile marketing and commerce will put a dent in things like direct mail, and probably printed books, as it has done already to printed newspapers and magazines. (Funny how we need to qualify those things with “printed” these days to avoid confusion, like “land line” phones.)

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  • BobP

    I checked out the site of the magazine consortium you mention in this post (Next Issue Media). I think they’re on the right track here, but looking at the GQ demo, I just don’t understand why magazines are insisting on trying to replicate magazine layout in apps for the iPhone/iPad. I mean, page numbers? It’s a little better than just delivering a PDF, but it’s not that far removed. Maybe this is just a practical way to manage production as the magazine tries to straddle both worlds, print and digital. But it strikes me as transitional, certainly not revolutionary. Does anyone else think publishers are still holding themselves back a little here, that they are not taking full advantage of these new devices and not making their products as appealing and convenient as they could be in these new formats — because they are refusing to completely cut ties with the old print format.

  • http://newsafternewspapers.blogspot.com/ Martin Langeveld

    BobP:
    Agreed. It’s a new medium and needs new thinking about design and the interface. But keep in mind it took several decades for TV to become a truly visual medium, and the web sites of the 90s were pretty clunky. So this will take a while.

    I think the magazine publishers also should get over thinking terms of packaged issues on the iPad. The consortium’s lead members (but not all of them) are resisting the idea of offering atomized content (where readers could pick individual articles or other content bits from multiple publishers), and only want to sell digital equivalents of weekly or monthly print pubs. This strikes me as retro thinking.

  • http://toughloveforxerox.blogspot.com Michael Josefowicz

    Martin,
    Thanks for the response. Your point is taken re ““at an increasing rate”. I think I read it through my somewhat defensive Print-centric eyes.

    Another thing you might keep on the radar is 2d and other 2d codes. Too long to detail here, but what I think I see is that is the new thing in Print.

    While most of the talk is about taking the user to a website, the under appreciated value created is real time data as to precisely when and where the user engages. It’s going to supply a new data stream that will give CMO’s cover to purchase print advertising.

    QR and other 2D are merely a very first step to Augmented Reality, which seems to me the way it’s going to go. Goggle Goggles are merely the tip of the iceberg.

    It’s always so interesting.

  • http://platform.idiomag.com Andrew

    Martin,

    Yes completely agreed that it is retro thinking to only try and sell complete packages of content (magazines) on the iPad. Apple build this gorgeous new piece of hardware, and the mag publishers celebrate, thinking its a route for them to produce, distribute, and monetise content in a method similar to 50 years ago.

    Packaged digital magazines will sell, but I can’t see even the iPad managing to rebundle what has forever become unbundled online.

  • David

    How about leaving this reactive strategy mindset and compete instead? Why go to heating centrals if you have 340 sunny days a year, when all you have to do is put a solar cell on the roof?

    I don’t get this even when it means newspapers have to go from being content to service providers…

    Newspapers, magazines, publishers need to upset – NOT adapt if they want to survive. (how? – - look at Hearst).

    My prediction is that we’ll see a massive attack on Amazon, Apple and other ‘monopolistic’ distributors, maybe this can change rules of the game a bit…

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  • http://www.yostella.com/ Stella Poppovich

    Apple quite possibly is about to dominate another online arena – content delivered directly to a device.

    Specifically the iPad which could be a game changer for Apple through an iTunes like interface which customers will customized content for daily delivery. Like the New York Times swift grab at first publisher to create content specifically for a device. They might be having a flashback to their poor decision in the mid-90′s to not publish with Amazon because of there advertising relationship with Barnes and Noble.

    I expect in the next two or three years a new online store from Apple which will be geared toward delivering content directly to consumers via iPad. No more newspapers, magazines or websites except maybe through Apples portal or cloud.

    Wondering what it will be called, perhaps iContent?

    Check out the complete read at YoStella.com – direct-to-device-icontent-by-apple

    Thanks, Stella

  • http://www.twitter.com/farano Adriano Farano

    Thank you for this interesting analysis. I would just add another recommendation to publishers: think “user”, don’t think “brand”. I-Pad users should be given the possibility to buy content subscriptions according to their interests, not only according to their brand preferences.

    Imagine an offer mixing NYT op-ed pages, Global Post foreign reports, local coverage of my community newspaper and Sports Illustrated coverage of my favourite NBA team for – say – the famous 30$ some NYT people would like to sell Times’ I-Pad subscriptions. Personalizing information: this is what publishers should do with I-Pad.

    Of course, this would imply to put upside down old media people’s current mantra – say, conceiving a brand-user vertical relationship.
    But web development shows that today’s true winners are platforms, networks and agregators. The real opportunity with the I-Pad is that it promises to be one of the first digital platforms to offer revenues.

    But to exploit its force, publishers should position themselves in this horizontal eco-system. And act according to its (evolving) rules. By blending their content according to users’ interests.

  • http://saxotech.com Brandon Mount

    Martin, as usual, insightful and defintely recommended reading. I’ll be sure our PMs read and absorb this post.
    Publishers need to think about being a piece of the picture with tablet devices ie ipad. Your content will be diluted in value by being read piece meal, much like google news already does, by consumers smart enough to select their content. To drive readers to your true high value offering, relevant and in depth content packages, get on the channels. Don’t lock it down. The big growth here is in home automation, ipad as tv remote, news reader, automation etc. So make sure as a publisher you go where the money is. Sell your content where it makes the most sense for advantaged discretionary local consumers. Push top stories and ecoupons to the channels and platforms that are becoming prevalent. That is, xbox, ps3, boxee, vudu, roku, etc. Crestron and the like are already in a panic over home automation being controlled by iphones and making their expensive proprietary hardware obsolete. Become an application that serves news to consumers leaning back and controlling their home and media consumption through ipad like devices. Think reading the sunday paper. Flexibility of content distribution will be key. Flexible and dynamic paywalls are needed for experimenting at low cost.
    I hope this makes sense it has been a long week.

    Best,
    Brandon

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  • David

    Do you really think the global publishers will just lean back and let Apple overtake their business? Look at Nokia – they just announced a whole new strategy which will compete heavily with Apple.

    And the iPad is really just the very first product in the whole new e-reader/tablet area. Many more and much more advanced ones will prevail within the next couple of years.

  • http://newsafternewspapers.blogspot.com/ Martin Langeveld

    David: note that in my assumption #2 I recognized your point that there will be other devices: “All forms of media consumption will move to mobile platforms, especially the iPad and its competitors and successors, at an increasing rate.”

    There have also been previous devices, including the Kindle. Publishers don’t need to let Apple “overtake” their business, but they do need to recognize that for the time being, iPad will be a very dominant platform they ignore at their peril.

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  • Michael Kirkbride

    It is my experieince that most people who think in 2D can not just all of a sudden think in 3D. The publishers that can make the dimensional shift will survive, i suspect their will be limited numbers. The Ipad will stike like the arrows in Avatar into a whole new world with luminescent content. That the ipad and devices thereafter can bring us luminescence is really the dawn of a special time.

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