The View From The Tree: iPadded Profits?
Consumers keep squawking about electronic publications, such as e-books and tablet versions of magazines, having higher prices than the printed editions. They'd better get used to it.
Digital publications are not necessarily more profitable or even less expensive for publishers to produce than their ink-on-paper counterparts. But don't tell that to the folks who shelled out hundreds of dollars for a tablet or e-reader under the often erroneous assumption that they would end up saving money on publications. Even media experts are confused on the subject.
Consider how Alan D. Mutter, who writes the usually excellent Reflections of a Newsosaur blog, described the drastic decline in sales per issue of Wired magazine's app: "A sale of 22k issues isn't all that bad, since it represents $87,780 in almost pure profit at $3.99 a copy."
Pure profit? Were there no programming or development costs? No marketing costs? No cannibalizing of newsstand sales? Book publishers, who have been at this game longer than their magazine counterparts, have no such illusions about electronic editions.
"We'd rather sell a printed book than an e-book," because the margins on printed books are larger, Jim Robinson of Harlequin Enterprises Ltd. said during a recent panel discussion about the future of publishing.
Philip Ruppel, president of McGraw-Hill Professional (who will be speaking at the Publishing Business Conference, April 4-6, in NYC), provided more insight recently in an article he wrote for Mashable: "For professional and technical publishers like McGraw-Hill, our e-books cannot stand the low, mass-market pricing some consumers think should be applied to every e-book. Our costs are invested in extensive product and editorial development of sophisticated and technical content; the cost of paper, printing and binding are a fraction of the real expense."
Ruppel could just as easily have been talking about consumer magazines. A copy priced at $5.99 on the newsstand often has incremental paper, production and freight costs of only 30 cents. The publisher might actually pay more for retail promotions than for the copies themselves.
As much as industry pundits rail against waste and inefficiency in the newsstand system—and there's certainly plenty of both—the economics of newsstand sales look pretty sensible to consumer magazine publishers. The development cost per issue is only a few hundred bucks to create separate subscriber and newsstand versions of the cover.
Even if only 40 percent of those $5.99 copies sell, the publisher's net may be more than $2 per copy sold.
Those newsstand copies have other benefits as well. Sold copies count toward the ratebase (minimum number of paid copies) promised to advertisers. Some will generate new, highly desirable direct-to-publisher subscriptions. Even unsold copies increase the number of eyeballs exposed to the issue's ads and generally raise awareness of the brand.
The iPad: "A Solution in Search of a Business Model"
As much as industry pundits sing its praises, the iPad still looks to many publishers like a solution in search of a business model (sort of like my blog, The Dead Tree Edition). If the much-hyped Wired offering is dropping like a rock, what does that say about the app prospects for the rest of us who can't generate the same amount of buzz and don't have such an early-adopter audience?
It's still hard enough to get traditional ad agencies to understand how the Web works, or why and how they should advertise on a site with a million monthly page views. How are we going to sell them on tablet editions that have only a few thousand buyers?
The typical response of media pontificators is that publishers have to do something—anything—to break into the app world because tablets are the future of media. We've seen, and suffered through, that movie before.
A decade or so ago in a galaxy not so far away, the pundits preached that publishers had to do something—anything—to break into the Internet. They were partly correct; the Web did fundamentally alter our business. But the "anything" included the ill-conceived Pathfinder portal that burned a multimillion-dollar hole in Time Inc.'s pocket and the $690 million purchase of About.com that nearly sank Primedia.
With the recent forays of American Media and Reader's Digest in bankruptcy court, and the sight of major vendors like Borders and NewPage seemingly on the courthouse steps, the print magazine business doesn't exactly look robust these days. But the solution isn't $1.99 tablet replications of print publications.
In fact, the most promising publishing-industry apps seem to be those that translate the print brand to a new medium rather than merely replicating the print product. Guitar World's Lick of the Day (see the article on publisher Future U.S.) and Cosmopolitan's Sex Position of the Day come to mind. (In a post on my blog, "App-oplexy: Magazines on the iPad," I tried to explain the difference between the two, but that can't be repeated in a respectable publication like Publishing Executive.)
Some day, publishers will work out a subscription model for the iPad. Some day, tablet versions of publications will develop enough critical mass to create ad networks and draw serious advertiser interest.
But for now, the following internal conversation from a publishing company sums up the situation:
"I love my iPad! We could do some really cool stuff with it."
"Yeah, one of the rocket scientists in IT has some great ideas for apps."
"Can we make any money on them?"
"I don't know."
"Screw it. Let's let the pioneers take the arrows in the back and keep our rocket scientists focused on launching that new Web product. We know we can make money with that."
As for me, I need to stop pontificating and get back to selecting paper for the launch of Angry Birds magazine. It'll be a killer on the newsstand. PE
D. Eadward Tree is the pseudonymous Chief Arborist for Dead Tree Edition (http://deadtreeedition.blogspot.com), recently named by industry commentator Patrick Henry as one of the top 10 blogs for printers and publishers. Mr. Tree is an old print dinosaur who doesn't know his RSS from a hole in the ground, but pay him a few bucks for an article and all of a sudden he thinks he's some kind of new-media pundit.