New Frontiers: iPad e-Magazine Pricing

This post is by Steven Duque from Living in the Future. He is a new contributor to Wall St. Cheat Sheet.

While magazine giants like Wired unroll plans to enter the iPad marketplace by summer, little has been said about the most pressing issue to most consumers: the pricing of e-magazines.

Subject to ongoing battles over who has rights to what, one thing remains certain to both publishers and Apple (AAPL) –content will cost something, unlike most e-newspaper counterparts.

Certain newspapers, like the Wall Street Journal (NWS) and the New York Times (NYT), have successfully employed partial pay or pay wall (i.e., pay after a reader has visited more than a certain number of times within a given period) models. WSJ.com boasts over a million pay subscribers for its online content. But, a million pay subscribers certainly isn’t the norm for most news content providers, and even WSJ articles can be accessed for free through backdoor sites like Google News (GOOG) (much to the chagrin of Rupert Murdoch).

Pulitzer Prize winner and former Chairman of Dow Jones & Co. (which publishes the WSJ) Peter R. Kann eloquently describes the decline of print newspapers, the emergence of the ‘free model‘ of online content, and the pricing challenge most newspaper publishers face:

“… by the time Internet editions arrived, the prevailing philosophy in most publishing companies already was that customers could not be expected to pay much for content, that it was easier simply to rely on advertising. The new Internet editions were merely the ultimate extension of that trend: free news to the consumer, total reliance on the advertiser.

But that didn’t quite work out as expected. Online advertising, given virtually unlimited supply and also given clever new competitors like search sites, has been nothing like publishers posited. Online edition ad rates and online edition ad revenues are only small fractions of those in traditional print. And as print advertising continues its steady decline, online advertising cannot come close to compensating.

The print editions still have customers willing to pay for at least a discounted subscription, but there are fewer of the customers as free online editions peel them away from print. And so the publishers are left to juggle their twin products—the old one in inexorable decline and the new one in commercial denial—and pray the future may be somehow different.”

Sadly, many print newspapers seem to be going the way of the dodo, drawing cries of death of the medium, at least as we knew it, from many.

Unlike their faster-moving counterparts, books — in all forms — are doing quite well, financially-speaking. According to the Association of American Publishers, book sales increased year-over-year by roughly 4 percent at $11.2bn for the year. Of those, about $170m were e-book sales, marking roughly 177 percent growth over last year. While not insignificant, e-books grabbed only a little over 3 percent of the total book sales.

Beyond the cost of e-readers, some, like PC World’s Tony Bradley, criticize what they perceive to be e-books’ bloated pricing model. Bradley writes,

“Media businesses–whether music, movies, books, magazines, or newspapers–seem to cling to a pricing model that fails to account for the significantly lower overhead of digital distribution. These entities seem hung up on pricing narcissism, rather than realizing that production costs are different and distribution is almost universal–changing the economics entirely from traditional models.”

Bradley suggests a revenue-focused model, which (to me) makes sense:

“Basically, publishers should be pricing digital distribution based on what it would expect in net revenue from the traditional distribution method, not based on some calculated percentage of the traditional retail price. I don’t know the exact numbers, but If Wiley is only going to net eight dollars when it sells a printed version of my book, then it should create a digital pricing scheme that nets the same.”

Unsurprisingly, many publishers like Murdoch seem more prone to employ beefier pricing models that hinge on how much people are willing to pay. Can you blame them for wanting a bigger margin?

That said, e-magazines provide a whole new opportunity to find a happy pricing medium that pleases both publishers and readers. Needless to say, the removal of frequent, full-glossy print production costs will reduce publishers’ overhead significantly, allowing them to price e-magazines lower than their costly print counterparts. Better content and more innovative design — enabled by the iPad’s functionality — will allow for the creation of quality multimedia experiences that readers/viewers are willing to pay for.

Central to paid e-magazines working is leaving old models behind–from both a production and consumer standpoint.

Content and design worthy of pay

In many ways, the term ‘e-magazine’ is too antiquated to encapsulate the multimedia, dynamic possibilities of content production and distribution through the iPad. It’s a given that video and audio should be integrated among text, but navigation through content should move beyond a page-by-page linear progression.

The navigational structure of each issue could take on unique properties, linking different portions of content to one another and external sources. Typefaces, sizing and layout could vary dependent on the content and what would be most aesthetically gripping to readers/viewers/listeners — much like magazines are now. To do this, however, developers would play an increasingly important role, taking on tasks akin to layout and design editors of magazines–but with more design elements at their disposal. It’s not just a matter of positioning text, pictures and headlines anymore. It’s creating a dynamic, multimedia experience with which readers and viewers can interact and experience with multiple senses.

In other words, publishers need to envision a medium that consumers are willing to pay for. If publishers utilize the technology to its fullest and give readers/viewers great content in a way they have never experienced it, I predict they will not only make good money, but they will also reverse magazines’ downward trend in recent years. Granted, that’s easier said than done. It may be the case that old magazine houses are too entrenched in their old ways to look into the future, and it may take a disruptive innovator in their industry to catalyze forward motion.

Shifting consumer focus: from price to value and cost

Most good sales people will agree that it is key to shift clients’ focus onto value, as opposed to price. A closer examination of  this notion and  re-reading Kann’s article in WSJ casts some light on how this is relevant to publishers’ making money with their content.

Entrepreneur.com’s Barry Farber writes,

“…there are customers worth working with, whom you can help understand the difference between price and cost. Price is what they pay for the product or service; cost is what the investment is over the lifetime of doing business. Can you help your customers grow their business in a way they never thought possible?”

In the case of publications, readers and viewers are in the ‘business’ of personal edification. And if publishers can convince their audiences that they convey quality content in a quality way, the cost of an e-magazine becomes an investment in personal edification.

Looking at the difference between e-books and e-newspapers (and WSJ’s content contrasted with many e-newspapers), the difference is quality. Books take a significantly longer time to write, and readers are thus willing to pay extra for the value of the writer’s labor. The WSJ has unique, quality reporting and a distinct brand, and hence people are willing to pay for the content over free content available on Joe Schmoe’s blog. Admittedly, this is an oversimplification of the issue at stake, and free content isn’t necessarily bad (achem…this blog).

To end, here’s a video demonstration of Wired’s iPad e-magazine, in current form. It’s looking pay-worthy, in my opinion.



What do you think about how publishing will change with the arrival of the iPad? Let us know in the comments below …

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