Thursday, June 07, 2007

Consumer Magazines and the Web Opportunity

We don't often see CEO's of major magazine companies talking intelligently and aggressively about their plans for the web. So its refreshing to read the interview with Ann Moore, CEO of Time Inc, on the Paid Content blog. She voices the fear which chills publishers when they look at the economics of web advertising, and lays out her approach here:

Here is the strategy. First, build the best of product. Differentiate it. Second, build the big audience and by that I mean you need partnerships with everyone. Then third, worry about monetizing it, but you got to have a big audience to make money on the web because the CPMs are low. I have said this publicly: The magazine model is a beautiful model because you got high margins; two revenue streams, the consumer pays and the advertiser pays; beautiful cash flow, you get the money up front. The average reader of Sports Illustrated delivers about $118 to the bottom line in Time Inc. The average very engaged user of can generate about $5 in advertising contribution. I need many more online viewers to equal one magazine reader. That is why you have to go for big volume and that is why you got to have partnerships. You do not do exclusives with anybody.
The abyss which terrifies mainstream newspaper and magazine publishers is that contrast between $5 from ads-only web users ("very engaged" users), and $118 from the ads+subs in print audience. Even if the audience is expanded 20-fold by the web, the revenues are treading water. Ann Moore seems to be driving her major magazine properties towards an ads-only, no-subscriptions web strategy. That may be right for Sports Illustrated and People magazine, but for many magazines that appeal to more specialist audiences a digital subscriptions strategy does work, its already working for magazines in our shop, and will be a key part of the right digital strategy for a consumer title. Most magazines appeal to niche markets -- which is the reason for their success in advertising. It is hard to make hard and fast rules here, but one would guess that a completely open web strategy funded solely by ads may well be a fruitful strategy for a magazine with over 1 million circulation. It is unlikely to be a productive strategy for many magazines with a circulation of less than 100,000 print copies. Over 95% of the magazine titles published, in this global industry, have circulations of less than 100,000 in their print editions.

Message to circulation directors: think digital and look for a subscription strategy which can support users who subscribe to different magazines.


Jon Noring said...

Adam, being a lurker (up to now) to your blog, let me say that I greatly enjoy the many thoughtful comments you have about the magazine publishing industry and the opportunities for digital distribution of magazines.

And this article I'm commenting to is especially interesting and informative since it includes quite specific magazine revenue information for both paper and digital distribution of magazines, something I've not seen cogently summarized before.

The twenty-fold discrepency in revenue between print and online magazines is certainly eye-opening. Of course, there are higher costs associated with the printing and distribution of paper copies of magazines, so that must temper the discrepency somewhat -- how much though, I haven't a clue (any numbers?).

Furthermore, one has to factor in that if online access to the digital magazine is free, then more people will naturally add the magazine to their daily reading habit, when otherwise they would not because of the cost and burden of handling paper copies.

For example, there are a large number of paper magazines I'm interested in reading, but at present I don't even subscribe to them because of the cost, the pain of maintaining a subscription, and what to do with the paper copies when I'm done reading them! If their subscription fees were only $1/year, I still would not subscribe to them, but if they were conveniently online (and with RSS feeds to notify me when a new edition/article is published), I would read them. I suspect I am not alone here.

Thus, except for very specialized magazines which have a very specific and highly motivated audience willing to pay for a subscription, I think that the paid subscription model is not necessary (and will not work) for a large fraction of magazines. Now, whether the advertising alone revenue model will provide sufficient revenue for most magazines remains to be seen.

Adam Hodgkin said...

Jon -- I have seen similar numbers quoted for daily newspapers. The revenue from ads 'per reader' is much higher in print than on the web site. There is certainly going to be a step change as reading habits move to the web. Viewing the way IPod users typically have much more music in digital form than the average CD collector has in that format, I would guess its quite likely (highly probable) that there will be an explosion in the availability of content when web distribution of print services is preponderant. We may 'subscribe' to many, many more news sources. I think average consumers will be willing to subscribe to some of them (the ones of highest quality or greatest specificity). but its only a firmly held hunch!

But its more than a hunch that readers are subscribing to our digital magazines. This is a format that works for subscribers.