So What is the Business Model?

In looking to the promising digital future for magazines it is essential that publishers separate out two questions:

1. What is the best consumer format for digital magazines?
2. What is the appropriate economic model for the digital magazine business?

These are very different questions. But the answers that we come up with are going to have a bearing, the one on the other. And vice versa. The magazine publisher has to get both right!

Over-simplifying wildly, there are currently three views on the appropriate format for digital magazines battling for the attention of the consuming public.

1. In some ways the simplest solution involves converting the magazines existing web site into an RSS feed which packages the contents of the web site for delivery in through a browser or an RSS aggregator. Many of the early magazine and newspaper apps were in effect re-packaged RSS feeds. In this view, digital magazines should aim at maximum topicality and a streaming delivery through which each story (or article) is delivered to the audience in a self-contained capsule, when it is ready and whenever it is updated, in a continuous flow. The RSS format has been leveraged and improved upon by Flipboard (Zite and Pulse are aggregators in the same category). This is a radical format change as a consequence of which the print magazine loses the 'rigidity' both of the 'issue' and of the 'page'.
   
2. More of a 'half-way house' is the trend to develop digital magazines which although they drop the 'integrity/rigidity' of the printed page, maintain the edition-driven, periodical, grouping of the dated issue. Magazines which are delivered as digital editions to the Kindle have this re-flowable format and step away from the pagination of the print magazine, they probably also 'lose' the advertisements which form a part of the print version, but they continue to adhere to the serial clumping of the magazine associated with a publication date, and temporal sequence in the magazine archive. We can think of these re-flowable digital magazines as similar to ebooks. It is no accident that magazines delivered through Amazon's Kindle (a dedicated ebook reader) have this structure. But there are plenty of similar ebook-like apps in iTunes. The Economist's iOS app is a good example.
3. The alternative model for digital magazine deployment, works from the supposition that consumers really want a virtual magazine. The digital magazine retains its print 'look and feel' with pages and settled issues, but the magazine becomes a virtualised object, at once familiar and flexible, browseable, searchable and linkable; a magazine which can be read on a mobile phone, a web-connected computer, or a tablet in analogous ways as the print magazine would be read as a physical product. Declaring an interest: this is the route to digitization employed by Exact Editions, but also by Zinio, and with some variations by Adobe. Commentators sometimes refer to these solutions as 'PDF magazines' or 'Page Turning' solutions/platforms, but such characterizations miss the point that virtualised digital magazines can be much more than mere replicas. Because they are virtualised replicas, they can have layers of additional purely digital functionality superimposed on the replicated structure. Obviously 'search', enhanced 'linkage' and integration with web services, multimedia elements and episodes can be stirred into the format and tablet-specific interactions work well on a digital object.
   

There really is no uniformity of opinion about which of these models for digital magazine delivery is the most suitable and attractive. Speaking for myself, as you might predict from my statement of interest, I have a strong preference for the virtual magazine model (type (3)), but I also enjoy Flipboard and can see why some readers may prefer an Economist-style app. We may also feel that the RSS magazine solution works better in the format constraints of a mobile phone, and in contrast the virtual magazine, which needs to handle fully designed pages, plays to its strengths within the scale of an iPad.

Consider this: if the best format for a digital magazine were a completely settled question, we should not be seeing so many experiments with differing formats and delivery services. It should also be noted that all three types of format are the subject of steady evolution and improvement: RSS-style, ebook-style, and virtualised page-based, digital magazine readers are all getting better. It is not as though the magazine industry has decided with a herd-like mentality that one digital format is clearly the winner -- whereas the book publishing industry, by contrast, appears to be reaching a consensus that ebook formats (such as for the Kindle or for ePub) are a settled choice.

Since there is a certain amount of confusion or disagreement about what digital format makes for the most pleasing and sustainable digital magazine experience, then it is hardly surprising that there is a lack of consensus about the appropriate business model around which magazine publishers should build their digital solutions. The problem here is that print magazine publishers (also printed newspaper publishers) have developed a twin track approach to revenue and profitability, through which advertising and sales (newsstand or subscription) both contribute. Magazine publishers are nervous about a digital future in which subscription sales would be the primary pillar of their magazine revenues. When a publisher looks at the digital distribution options for magazines in relation to actual or potential business models for a magazine business, the choices become rather constrained. The RSS model really has to be an advertising-led or even an exclusively advertising path for monetisation. The ebook approach clearly forces the pace on subscriptions, and since most ebook-style magazines actually drop the advertising component its actually inimical to the advertising revenue stream. Any play for digital magazines where ads and subs are driving the revenue line has to come up with a solution through which advertisements and subscriptions are working jointly through a digital medium. The virtual magazine looks as though it might carry this two track approach.

Ken Doctor, over at the Nieman Journalism Lab, has posted an intriguing analysis of the parallels between film distribution (as managed by Netflix) and the digital transition confronting newspaper and magazine publishers. In Doctor's view:

These economics of transition have a second, big piece for publishers that Netflix doesn’t have to worry about: advertising. With advertising accounting for 70 percent of newspaper revenues worldwide, the huge question for publishers is how much ad revenue they can make from purely digital customers. In the U.S, newspaper publishers know they make more than $500 a year on a Sunday print subscriber. With reduced digital product cost (like Netflix’s reduced cost of streaming), newspaper and magazine publishers won’t need the same level of revenue, but they will need a substantial part of what they are getting today. Those economics are just being modeled now in 2011, as the promise of higher-priced and higher-value tablet (and smartphone) advertising looks like it may be real and buildable.

Magazine and newspapers aren’t yet ready to more forcibly shift the audience in the direction of digital-only. The Newsonomics of Netflix and the Digital Shift.

Doctor reckons that the periodical business has perhaps one to three years to prepare for an accelerated shift to digital. I am not sure about the higher-priced and higher-value tablet advertising metrics that Doctor discerns, but from the rate at which iPad subscriptions are motoring there is a growing perception that the digital shift with magazines has certainly begun and it is subscription led, and iPad shaped.