Saturday, October 29, 2011

Technology Thoughts

A column in today's LA Times asks the question - Will tablet computers save newspapers?

This link reflects a story and analysis of actions being taken by the Philadelphia Media Network, publishers of the Philadelphia Inquirer and the Philadelphia Daily News, to enter the hardware market, and develop their own tablet computer and customized apps / content for the tablet.

The conclusion of the LA Times James Rainey is that the solution is “more like a silver BB than a silver bullet”.

For publishers, the internet has been a paradox.  Many see the advantages of using the internet for promoting their brands, disseminating information, and expanding their marketplace – but they have also been fearful of giving away for free what they used to charge for.  They have yet to develop a viable advertising process that matches the advertising revenues they get from their print editions.   They cannot provide prospective advertisers with real numbers on the numbers of times their ads have been viewed – and efforts to ‘force’ page views of adverts have a tendency to tick off the readers. 

Some have tried to establish a pay wall for their products and content.  The New York Times is on its second major attempt at a pay wall.  The first was not very successful as the subscriber numbers were even more anemic than the print edition. For me, the challenge was the cost versus the quality of the product.  There wasn’t enough unique or valuable content being provided to be worth the price of subscription. 

However, there are some successful efforts at creating a pay wall / online subscription model.  The Wall Street Journal is perhaps the most successful.  Their secret? They have compelling, viable, and valuable content being offered within their subscription content that is worth the price of subscription.

The New York Times, and other newspapers, is getting a little smarter in their second / third efforts towards an internet subscription market.  The NYT touts the numbers of people who have downloaded their apps for the iPad, iPhone, and other smart portable devices.  But this doesn’t fully reflect the real measure – of those apps that were downloaded, how many people took the step to subscribe for content beyond the free ‘teaser’ content that is provided?  For me, the NYT app still doesn’t offer the value to get me to subscribe.

The other aspect that publishers are starting to get right – and this is a combination of their efforts as well as major improvements in the capabilities of the devices is to increase the amount of content they are providing and improve the appearance of the content.

When I got a Kindle 2 years ago, I subscribed to the Wall Street Journal.  At first I was disappointed.  The subscription didn’t have the same benefits as a digital subscription to the WSJ and the amount of content (stories) available, while more than the free online version was limited.   While I still don’t have the same benefits as digital edition subscribers direct through the WSJ, the amount of content provided each day has quadrupled.  I now am getting value from this.

On my iPhone, in the newly released Newsstand application, I can subscribe to magazines and newspapers at very competitive rates.  Using the graphic capabilities of the iPhone / iPad, these magazines are identical to their print editions – including all of the advertisements.  This is getting far closer to content that is both appealing and offers value to the subscriber.  Will this model, via the subscriber numbers, offer enough to keep advertisers paying what the publishers want or need for their revenue model?

Generally though, without viable revenue model around advertising, in my opinion, most publishers at best are dabbling with their online efforts.  They don’t see how they can really make money without ‘cannibalizing’ their print editions and losing advertising revenues.  They also have the challenges with improving the quality of their product – which far too many do not see as a source of their problems.

Entering the hardware business is one way to do this – but I think the example of the Philadelphia Media Network is the wrong approach and the wrong model.  Publishers shouldn’t be entering the hardware business.  That’s not their core.  They need to focus on their core expertise and address their quality issues.  For the hardware, they need to partner with companies but do so in a manner that goes beyond the current Apple / Amazon publisher subscription model.

They also need to take a different look at the pricing of their products and the financial model.  For publishers today, one of their largest expenses is the physical production of their product.  The printing of their newspapers or magazines.  Then there are the costs associated with the delivery of their product to the consumer – at their home or via retail outlets.  These costs are substantial.  But with electronic delivery of their products via electronic devices, in particular to those that are co-branded between the publisher and the hardware manufacturer, these costs drop or disappear (in a pure digital model).

The uses of these devices aren’t a new source of revenues, but have to be seen as a generator of significant cost savings.  Newspaper XYZ has roughly 800,000 print subscribers.  I read once that it cost a major paper with that number of subscribers about $600,000 per year for just their printing costs.  Distribution and delivery costs would be on top of this.  What if newspaper XYZ could drop its printing, distribution, and delivery costs by 2/3rds?  It charges today about $20 per month for a print subscription. 

What if they digitized the paper as it is today – with the layout and adverts – and offered it on a co-branded tablet device for $15 per month using a similar model like the cell phone carriers – a 2 year subscription commitment being required with an early termination penalty?  Make this the only way one can get home delivery.  Included in the partnership with the hardware manufacturer a cut for the revenues of other apps / services the customer purchases when using the branded device.  What would this do to the business model when examined against the cost savings achieved in printing, distribution, and delivery?

The devil's in the details so to speak - viable tablets need to get in the sub-$200 price mark to make this worthwhile for the parties involved - and the split of subscription revenues will have an impact.  But this model can maintain the advertising model as it is while cost savings (as opposed to new revenues) are the primary driver. 

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