This guest post is by Tien Tzuo, founder of Zuora, a subscription billing company. Previously, he was chief strategy officer and employee No. 11 at Salesforce.com.
Publishers have been struggling for years. Now local newspapers, magazines and even the New York Times, that Grey Lady, are being treated like old ladies by Apple, stealing their pocketbooks while they’re trying to stay on a fixed income.
This week, Apple announced what the publishing industry has been clamoring for, subscriptions, in exchange for a whopping 30% cut. Clearly, paid subscriptions are a part of the future of all online media, whether tied to a print version or not. That’s what The Daily is all about and even AOL might one day go down that path (Tim Armstrong admitted as much on CNN). It’s part of the shift to the Subscription Economy that’s happening across not just media, but software, cloud computing, communications, consumer services, entertainment, you name it. In just the past year, as one example, my company, Zuora, has signed over $1 billion in contracted subscription revenue.
But something very dangerous is happening. Apple is now calling the shots for the entire publishing industry’s digital strategy. Think about that for a minute. While Apple is prescient and makes great products, it’s hardly a publishing expert. Yet, Apple is setting up new rules that could bring the publishing industry to its knees. As if it weren’t already in that position.
It’s not that Apple can’t save publishers—which I don’t think it will with these financial terms. It’s that its model completely ignores the realities of the publishing business:
■The App Store and iTunes only offers one subscription pricing model. Will a single model work for the San Jose Mercury News, the Wichita Eagle and Runners World? The reality is that it’s likely going to be very different for different titles and subscribers.
■Apple has no way to bundle physical and digital goods. Do you want to give up home delivery forever? Or would you still like to get a Sunday paper every week or monthly glossy magazine along with your digital version? I bet most consumers would like some combination of both.
■With the Apple model, there’s not enough adequate ad revenue from tablet editions of magazines and newspapers. In particular, eliminating the Sunday delivery also means that local papers lose a huge advertising vehicle.
■Consumers won’t stand for one subscription through one device. People want to consume their news on whatever device they have at hand—whether it’s a Blackberry, an iPad or an Android phone. Amazon is showing us all the way with their “Kindle reader everywhere” strategy (with syncing bookmarks to boot), and Google has set a strong standard in its deal with Time Inc around Sports Illustrated subscriptions. Publishers also know that content ubiquity requires platform independence.
■As last week’s article from John Squires, former EVP for Time Inc, so rightly points out, access to customer data is truly the lifeblood of the publisher’s business model. In the Apple world, Apple is the one controlling this data.
To quote Steve Jobs himself, “A functioning media is vital to a functioning democracy.” I agree, and I think there’s a better way to use the genius of the iPad and other devices that enables publishers to control more of their destiny—and benefits everyone financially.
So what’s a publisher to do?
Take Matters Into Your Own Hands: Don’t be tempted by that juicy red apple called the iPad. You need to build your own online subscription commerce strategy, one that allows for lots of different ways to package up your content and sell it.
Not Your Father’s Subscriptions: The industry continues to see “subscriptions” in terms that are far too simplistic. Yes, consumers will never agree to switch to a full “subscription only” paywall, so you need to have flexible billing that can slice, dice and package content by the month, the article, by home delivery days, by online, and the list goes on.
Make It Easy: Provide customers single click convenience while providing a PCI-compliant payment and billing process. You need to be able to bundle, cross-sell and rapidly deploy promotions to capture more readers than you ever could through a call center.
And as for Apple? Can you redeem yourself?
Customers with Benefits: If you want that 30% cut you have to let the publishers own the subscriber relationship. Share that data and you both win. Simply giving subscribers “the option” won’t cut it.
Freedom of Choice: You know consumers want both print and digital. This isn’t music. There’s no love lost for the CD. Most consumers want to keep home delivery, and publishers want to be free to work across platforms and devices. “Control” and “closed” are completely counter to the anti-Big Brother brand.
Help Them Help You: Selling publications is not the same as marketing the latest Black Eyed Peas song. Newspapers and magazine titles will get lost in the iTunes model. Just being part of the App Store isn’t enough. You need to deliver more merchandise value for a 30% cut.
The bottom line? The Subscription Economy is here, and Apple should be applauded for offering content via subscription. Unfortunately its model just scratches the surface. In the end, publishers should think twice before taking a bite of the Apple. This current plan will do more to hurt publishers then to help them make the shift to the online world.
Those death-defying newspapers
By David Olive | Sun Feb 13 2011
Newspapers are proving so resilient that the term “dying newspaper industry” will be retired in the next year or two.
Newspapers are still profitable, even in the midst of the most punishing ad drought in memory. Readership is at record levels, despite price hikes imposed by publishers. And web interlopers haven’t laid a glove on the industry’s status as society’s dominant news-gatherer.
In the latest sign of the industry’s strength, Statscan reported this week that the pretax profit margin for Canadian newspapers averaged 9.9 per cent last year. That’s down markedly from the halcyon pre-Internet, pre-ad-slump of 12.3 per cent in 2008. But it’s a long way from the extinction forecast for the industry by the most exuberant heralds of a purely digital world, a brave new world devoid of household names like the New York Times, Le Monde and metro dailies like The Toronto Star.
As recently as last year, the industry was shuddering from 2009’s stomach-churning plunge in advertising revenues, which cratered after the onset of the global financial crisis. Sam Zell, the real estate mogul who had just bought newspaper conglomerate Tribune Co., moaned that the industry was “looking at some of the worst advertising numbers in the history of the world.”
In the darkest hours, the venerable Seattle Post-Intelligencer and Denver’s Rocky Mountain News closed. Tribune and CanWest Global Communications Corp., the largest newspaper owners in the U.S. and Canada, respectively, filed for bankruptcy protection.
Yet newspapers appear poised for a bright future. To be sure, ad-revenue growth remains anaemic. And the industry has likely lost forever its lucrative franchise in classified ads, to Craigslist and other online upstarts.
But the widely anticipated “hollowing out” of newspaper readership hasn’t happened. Quite the opposite. The newspaper habit is stronger than ever, with more than three-quarters of Canadian adults, or 77 per cent, reading the print or online edition of a paper at least once a week.
Over the past five years, readership of Canada’s 95 dailies has actually increased, albeit by a modest 3.7 per cent. More than 14.7 million Canadians read a paper each week. That’s a “reach,” or portion of potential audience, that no non-traditional medium comes close to matching.
As important, Canadians are spending more time with newspapers. According to the latest, 2009-10, readership survey by NADbank, the industry group, in Canada’s top 10 markets readers are spending more than 3.8 hours a week with newspaper print editions. That’s up 2.1 per cent over the past three years.
And that at a time when publishers were raising the price of their product, enabling the industry to post a 12.9 per cent increase in circulation revenue between 2007 and 2009 to cushion a 4.9 per cent drop in ad revenues.
Meanwhile, readers are not spending close to two hours a week with the online editions of newspapers. Traditional papers are winning out in cyberspace. Retaining their status as the most trusted of news sources, with brand names dating back to 1778 in the case of the Montreal Gazette, newspapers have been able to build huge online audiences from scratch. The New York Times now claims a staggering 55 million online readers, against a weekday print circulation of less than 900,000. Online now accounts for 26 per cent of the New York Times’ total ad revenue.
Newspapers have benefited enormously from the rapid fragmentation of cyberspace.
The online world now is populated by social-networking sites, including Facebook with its 555 million members. There are some 200 million “blogs,” or personal web logs of writers on every topic from orchids to T-bill investing. There are tens of thousands of specialized newsletters, some published by the usual financial-services industry suspects, others independent, but none differing in content from their non-pixel predecessors. Not to overlook the so-called “aggregators” that merely repackage the online content of traditional media sources.
In that hyper-crowded arena, the advantage has gone to the most familiar tribunes. That would include the 164-year-old Chicago Tribune, which like almost every daily in North America has continued to earn profits through the industry’s worst hours. Indeed, industry warhorses the New York Times, Rupert Murdoch’s Wall Street Journal and even Tribune have reported profit gains in the past year.
Having not endured a crisis of this order since Gutenberg, the industry took on the appearance of a man with his hair on fire and trying to put it out with a hammer. Yet the demise of the Seattle P-I and the “Rocky” were simply a long-delayed capitulation to the one-newspaper monopoly that has characterized U.S. cities since the 1970s. And Tribune and CanWest succumbed to unsustainable, acquisition-related debt.
The “barriers to entry,” in econospeak, for launching an online publication are exceedingly minimal. Anyone with a Facebook, Blogger or Flickr account can become a publisher. Volatility is the norm, as underfunded websites are routinely abandoned.
By contrast, Star owner Torstar Corp., with close to $1.5 billion in 2009 revenues, has the resources to launch a portfolio of websites, host dozens of bloggers, and maintain a costly IT crew to run a complex digital enterprise.
Which explains why top-flight U.S. bloggers Andrew Sullivan, Felix Salmon and Eric Alterman have given up their garrets to bunk in with the venerable Atlantic, Reuters and The Nation, respectively. And why aggregators Huffington Post and The Daily Beast have sought shelter in larger and more familiar enterprises, AOL Inc. and the 77-year-old Newsweek, respectively.
In the past 12 months, shares in North America’s top10 publicly traded newspaper firms have gained an average of 20.8 per cent. And that’s before any meaningful recovery in ad revenues, or significant migration of print advertisers to online. And ahead of the New York Times’ second experiment, later this year, with trying to charge for selected online content. That’s a feat the Wall Street Journal and Financial Times have pulled off, and that Murdoch’s general-interest papers are now attempting.
Not long into the Internet’s brief history, users were complaining that “trying to get a drink from the Web is like sipping from a fire hydrant.” That growing flood of information is a boon to traditional newspapers. They alone have the expertise to quickly collect and verify staggering amounts of data and present it in reader-friendly formats.
We’ll hear soon enough about the phoenix-like rebirth of newspapers. It will be a crock, since there were no ashes to rise from. But editors will enjoy handling those reports far more than the industry obits they’ve edited these past few years.
by: Larry Kramer
Suddenly there are a lot of moving parts on the media landscape. And what’s really interesting is that they all seem to be moving in the same direction.
We have old media coming toward new media: Rupert Murdoch and Steve Jobs building an IPad-only newspaper.
We have new media moving toward old media: Gawker’s Nick Denton, Newser’s Michael Wolff, Talking Points Memo and Digg all changing their look to add curation and perspective to their pages, and make them behave more like traditional media, editors and all.
We have a huge example of old and new media merging to create, well, newer media: Tina Brown riding her Daily Beast up a steep slope to take over and merge with Newsweek……………… click to read entre story
As newspapers everywhere struggle to stay afloat and remake themselves for a web-based world, many continue to debate how much emphasis they should put on digital vs. their traditional print operations. John Paton, CEO of the Journal Register group of newspapers, says the time for debate is over. Newspapers need to be digital first in everything they do, he says, and more than that, they need to take the same approach to their businesses that many web-based startups have, and that means being transparent, crowdsourced, collaborative and flat. There’s no question; it’s an inspiring message, but will anyone listen?
In a speech he delivered Thursday at the Transformation of News Summit in Cambridge, Mass. (put on by the International Newsmedia Marketing Association or INMA), Paton said that the Journal Register — which he took over in February — has been living and breathing these principles for the past year, and they’ve paid off in terms of both revenue growth and profits for the company, which was effectively bankrupt last year. Paton says the Journal Register’s profit margins will be about 15 percent this year.
In effect, Paton says, the Journal Register — which publishes about 170 daily and weekly papers in Pennsylvania, Michigan, Connecticut, New York and New Jersey — is already a digital-first company whether it wants to be or not, because its total online audience is bigger than its print audience. “We are already a Digital company,” he said in his presentation, “with small sales in the area of growth and a burdensome cost structure on the declining business – Print.” The newspaper CEO said the company has dealt with that cost structure problem by outsourcing everything it can to others who can do it cheaper or better.
We are getting out of anything that does not fall into our core competencies of content creation and the selling of our audience to advertisers. Get rid of the bricks and iron [and] focus on core competencies — meaning, get rid of those things that don’t add value to the business. Reduce it or stop it. Outsource it or sell it.
What’s most interesting about the Journal Register’s approach is it doesn’t rely on putting up paywalls, the way that media mogul Rupert Murdoch has done at his newspapers in Britain — which led to a decline in online readership of more than 90 percent — and the way some other media outlets such as the New York Times are planning. Instead, Paton is focused on expanding the relationship his newspapers have with both readers and advertisers in their local communities, and taking that online. He says it’s working even better than expected.
Digital ad growth is 2 times better than the industry. More importantly the company’s digital revenue has grown from negligible to 11 % of ad revenue in November – in less than a year. The company will write about 1,000 digital ad orders this month and has expanded its revenue streams from about 13 basic revenue streams to about 60. And all of that with less costs.
In addition to the advertising growth, Paton says his papers are reaching out to the communities they serve, to make them part of what he calls the “new news ecosystem.” For one paper, the Register Citizen in Connecticut, that means creating a new community newsroom, which the newspaper is moving into later this month — the new offices have no walls, Paton says, and feature “a newsroom café with free public Wi-Fi, a community media lab and a community journalism school.”
The Journal Register CEO has also been taking the same approach to his own company: Earlier this year, Paton launched a project called ideaLab, in which employees from across the company were chosen from an open application process that generated almost 200 comments on Paton’s blog (his post about the lab is here). Armed with their choice of mobile phone, a netbook and iPad, members of the ideaLab get 10 hours of paid time per week to experiment and innovate — and only one rule, Paton said: There are no rules, and no sacred cows. Paton also had strong words in his presentation about why most newspapers aren’t changing:
The reasons… are simple: Fear, lack of knowledge and an aging managerial cadre that is cynically calculating how much they DON’T have to change before they get across the early retirement goal line. Look at the grey heads in any newspaper and you will see what I am talking about.
The solution, according to Paton?
Stop listening to newspaper people. We have had nearly 15 years to figure out the Web and as an industry we newspaper people are no good at it. No good at it at all. Want to get good at it? Then stop listening to the newspaper people and start listening to the rest of the world. And, I would point out, as we have done at JRC – put the Digital people in charge – of everything.
Whether anyone decides to take the Journal Register Co. CEO’s advice, it seems clear that the approach is working for Paton’s chain; he says in the year to date, the company outperformed the newspaper industry, with ad revenue growth three times better than the industry average, and classified ad performance that was six times better. Since costs have shrunk, profit margins have actually increased. On top of that kind of financial performance, it’s refreshing to see a newspaper publisher not just talk about going “digital first” but actually put his money where his mouth is. If you care about the future of newspapers and media, it’s well worth reading the entire presentation.
It’s long been an article of faith among media optimists that the shift to digital publishing would be a good thing for publishers in the long run, freeing them of the burden of their biggest costs: paper, printing and postage.
That’s why I was surprised to hear David Link, founder and creative director of the digital design firm The Wonderfactory, say, at a recent conference, that producing and distributing app-based magazines for tablet computers and other mobile devices is as costly as putting them out with ink and paper, if not more so. The problem, he told me afterward, is bandwidth. Magazine apps are large downloads. One of the biggest, the early version of Wired’s iPad edition, was around half a gigabyte.
If you’re selling directly through Apple’s iTunes store, that’s no problem: Apple handles the download — in exchange for a 30 percent cut of the sale price. But most publishers aren’t satisfied with that arrangement, which leaves Apple in control of the customer relationship and the resulting data and, for now, limits them to selling single copies rather than subscriptions. However, says Link, “if they’re going through the subscription route and they want to circumvent that” — for instance, through Zinio, a digital publishing services provider with an app of its own — “then they actually have to pay for all that bandwidth.”
Over time, of course, bandwidth gets cheaper, and file compression gets better. Link says most magazine apps now fall in the range of 80 to 250 megabytes per issue, and “I’m hoping they’ll get down to 30 to 50 megs.” But set against that is the pressure to inflate them with ever more rich media. Just as publishers once conditioned readers to expect that all print content ought to be free online, now they’re teaching consumers to expect magazine apps that are tricked out with videos, interactive graphics and more. Link points out that Sports Illustrated’s iPad app, which Wonderfactory developed, features 50 to 100 photos per issue not found in the magazine. And all that extra content doesn’t produce itself, either: Link estimates that putting out an enhanced mobile edition requires two to five extra staffers.
None of this is to say media apps won’t be a great business at some point. But if and when they get there, it will be because of of the high rates publishers will be able to charge for rich, interactive, targeted advertising. Take that out of the equation and app-based publishing, like print publishing, is a cost-heavy, money-losing proposition.