I’m excited for the launch of the new Apple (NASD:AAPL) iPad and over the next 12-18 months, I think it can really transform the way that users interact with content. But I don’t think it’s the savior of the newspaper and magazine industry that many are holding it up to be.
Looking at subscription revenue, I think there will be some gains, but those will be limited to a handful of publishers. The WSJ intends to charge $17.99 per month for access on the iPad. That seems a curious price, as new users can subscribe to wsj.com for $8.62 per month, a print subscription is around $10/month and a combined print/online subscription is just $11.66 per month. Despite that pricing inequity, the WSJ may do reasonably well in the short-term. Initial buyers of the iPad will be hungry for content and many of those may be able to expense their WSJ subscriptions. This blog and others have long pointed out that the WSJ, often paid for by businesses, is not representative of the newspaper industry. Even so, while the Journal may attract 50k paid subs to an iPad app, that will only provide a modest boost to its revenues and much of that may come at the expense of existing print or wsj.com subscriptions.
The FT, which has a similar demographic of business users, is taking a similar approach, with a $190/year price tag (after 2 months’ free service) for iPad users.
The New York Times has yet to announce its iPad plans, but I expect it will come in slightly lower than the Journal and the FT. Rather than pricing it as a premium to print, I think the Times Digital folks will win the pricing wars and price it in the $10/month range, a discount to print but a premium to the free online site. Some suspect they will charge $14.95, the same price they currently charge for Times Reader, though I think they will want to maximize initial readership on the iPad, to take advantage of the early enthusiasm. It’s easy to raise prices down the road but hard to reclaim an audience once they’ve found that alternative sources meet their needs.
Yet, overall, I doubt that the iPad will be the savior most newspapers are hoping for.
The move to more syndicated content in recent years has helped newspapers slow the hemorrhaging on the expense side, but it’s also led to newspapers losing their identity. For almost any newspaper, there is an adequate substitute available for free. As Murdoch moves the Times of London behind the pay wall, the Guardian will see an increase in readership. There are dozens, if not hundreds of quality free sites for national and international news. And nearly every city in the world has quality free sites that focus on local news and activities.
The other challenge facing newspapers is one of demographics. The iPad will initially attract an audience of technology-savvy users, mostly under the age of 45. These are the users who have been consuming news via the web; it’s the iPhone and Blackberry user. Many of these users have already stopped reading newspapers in print and are not wedded to a specific newspaper.
While I’ve focused largely on newspapers, I see the same impact for magazines. While the iPad does create many possibilities for magazines, I’m not convinced that those enhancements will drive the additional revenue publishers expect, either from subscription or advertising revenue. Publishers tout how the iPad will enable them to include much more content than the printed page supports. The widely viewed Sports Illustrated tablet demo talked of thousands of photographs of a key sporting event, which never made it on the page. Yet there are no shortage of photos of the Super Bowl, Olympics or World Series already. How many will choose to subscribe just to access that content? Perhaps SI is really betting on people subscribing to get thousands more photos of their annual swimsuit issue.
As with newspapers, I do expect an initial burst of creative advertising idea; yet in the long run, this may not be sustainable. The iPad will open up new possibilities for advertisers – including interactive games -but they may find that in exploring those new ideas that it’s more cost-effective to launch those as apps rather than paying a premium to ride along with a magazine.
That’s not to say that the iPad will not generate revenues for content providers. I think it will prove to be a boon for many publishers. But I think that the biggest impact will come in the area of entertainment, rather than news. Video consumption on the iPad should vastly exceed video on computers or mobile devices. The iPhone has become a premier platform for gaming; the iPad should accelerate that trend and become a viable alternative to the Nintendo DS and Sony PSP. There will be some successful startups, just as Zynga and others have found success on Facebook. And we’ll soon see major game makers begin to develop for the iPad platform (how long before we see Super Mario on the iPad?). Yet, the largest revenues from that growth will largely accrue to Apple.
To start, let’s take a look at what’s caused the newspaper industry to crash in recent years.
First is the total collapse of the classified ad market, where newspapers ceded their most profitable revenue stream to Craigslist, Monster and others. Classified ad revenue has dropped by more than two-thirds in the past 10 years.
Second is the fact that during the economic downturn, retailers, long the mainstay of newspapers advertising, have cut back dramatically in their advertising. While the recession accelerated this trend, the recovery will not return us to that environment. Much of that advertising is gone for good. Big box retailers are now dominant and spend much less on print advertising than the smaller local advertisers they’ve replaced.Third is the fact that newspapers (online and off) have lost significant readership share in the past 10 years, what Ken Doctor calls “the attention gap” in his excellent book, Newsonomics. One of the reasons for this is the generic nature of almost all newspapers today; as newspapers cut costs, they began to use more syndicated content, losing their uniqueness and their voice. As a result, news sources are basically interchangeable. So, Yahoo News is just as good as their local newspaper for most users. We are now in a market where “good enough” is clearly good enough.
As the New York Times recently noted, 2009 was the worst year for the newspaper industry in decades. Ad revenue dropped $10 billion - more than 27% - from 2008, previously described as the worst year for newspapers since the Depression.So, what can the iPad and other tablet devices do to reverse these trends? From my perspective, not a lot.
From an advertising perspective, I expect there will be a burst of advertisers who line up initially, looking to get strong positioning on the iPad during the early hype curve. But how many of those stay will depend upon the response rates they get. And while click-through rates and engagement could be higher on the iPad than for traditional banner and space ads online, the number of eyeballs will be a small fraction of those reachable through the web or broadcast tv. So I think any iPad premium will quickly diminish, though a handful of publishers may see a small revenue bump for the first 9-12 months.Looking at subscription revenue, I think there will be some gains, but those will be limited to a handful of publishers. The WSJ intends to charge $17.99 per month for access on the iPad. That seems a curious price, as new users can subscribe to wsj.com for $8.62 per month, a print subscription is around $10/month and a combined print/online subscription is just $11.66 per month. Despite that pricing inequity, the WSJ may do reasonably well in the short-term. Initial buyers of the iPad will be hungry for content and many of those may be able to expense their WSJ subscriptions. This blog and others have long pointed out that the WSJ, often paid for by businesses, is not representative of the newspaper industry. Even so, while the Journal may attract 50k paid subs to an iPad app, that will only provide a modest boost to its revenues and much of that may come at the expense of existing print or wsj.com subscriptions.
The FT, which has a similar demographic of business users, is taking a similar approach, with a $190/year price tag (after 2 months’ free service) for iPad users.
The New York Times has yet to announce its iPad plans, but I expect it will come in slightly lower than the Journal and the FT. Rather than pricing it as a premium to print, I think the Times Digital folks will win the pricing wars and price it in the $10/month range, a discount to print but a premium to the free online site. Some suspect they will charge $14.95, the same price they currently charge for Times Reader, though I think they will want to maximize initial readership on the iPad, to take advantage of the early enthusiasm. It’s easy to raise prices down the road but hard to reclaim an audience once they’ve found that alternative sources meet their needs.
Yet, overall, I doubt that the iPad will be the savior most newspapers are hoping for.
The move to more syndicated content in recent years has helped newspapers slow the hemorrhaging on the expense side, but it’s also led to newspapers losing their identity. For almost any newspaper, there is an adequate substitute available for free. As Murdoch moves the Times of London behind the pay wall, the Guardian will see an increase in readership. There are dozens, if not hundreds of quality free sites for national and international news. And nearly every city in the world has quality free sites that focus on local news and activities.
The other challenge facing newspapers is one of demographics. The iPad will initially attract an audience of technology-savvy users, mostly under the age of 45. These are the users who have been consuming news via the web; it’s the iPhone and Blackberry user. Many of these users have already stopped reading newspapers in print and are not wedded to a specific newspaper.
While I’ve focused largely on newspapers, I see the same impact for magazines. While the iPad does create many possibilities for magazines, I’m not convinced that those enhancements will drive the additional revenue publishers expect, either from subscription or advertising revenue. Publishers tout how the iPad will enable them to include much more content than the printed page supports. The widely viewed Sports Illustrated tablet demo talked of thousands of photographs of a key sporting event, which never made it on the page. Yet there are no shortage of photos of the Super Bowl, Olympics or World Series already. How many will choose to subscribe just to access that content? Perhaps SI is really betting on people subscribing to get thousands more photos of their annual swimsuit issue.
As with newspapers, I do expect an initial burst of creative advertising idea; yet in the long run, this may not be sustainable. The iPad will open up new possibilities for advertisers – including interactive games -but they may find that in exploring those new ideas that it’s more cost-effective to launch those as apps rather than paying a premium to ride along with a magazine.
As Michael Wolff notes:
“The iPad has nothing to do with magazines… [Magazines are] a promotional entry into this business. Why you should add another computer to your set of computers. But is it about the magazines? Is it about the traditional media business? Not on your life. This is one of those moments in which everyone says, 'Oh, maybe this is the way magazines will be saved.' They will not be saved this way.”
That’s not to say that the iPad will not generate revenues for content providers. I think it will prove to be a boon for many publishers. But I think that the biggest impact will come in the area of entertainment, rather than news. Video consumption on the iPad should vastly exceed video on computers or mobile devices. The iPhone has become a premier platform for gaming; the iPad should accelerate that trend and become a viable alternative to the Nintendo DS and Sony PSP. There will be some successful startups, just as Zynga and others have found success on Facebook. And we’ll soon see major game makers begin to develop for the iPad platform (how long before we see Super Mario on the iPad?). Yet, the largest revenues from that growth will largely accrue to Apple.
The iPad is poised to change the way that users consume content. Unfortunately, it seems unlikely to have an equal impact on media business models.
