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Feb. 18, 2010, 10 a.m.

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.

POSTED     Feb. 18, 2010, 10 a.m.
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