I don’t know why I’ve thought about this quite a bit recently. I’m a huge fan of the blogosphere, and I’m really excited by the possibilities of the new digital journalism steps being taken by the main newspaper organisations (like the extract replica e-editions of newspapers, available to buy on a very cheap subscription basis). I also love the new contributors to the scene, who have arrived perfectly placed to take advantage of the digital sphere, like The Daily and the longer-running Daily Beast, which of course merged with Newsweek.
But there are problems. What’s the best business model for these new outlets? How many people are embracing them? Journos are losing their jobs in droves, how do we stop this decline? And indeed, should we be concerned with stopping this decline?
Lots of questions, issues and anxieties. People way more knowledgeable and smarter than me have weighed in on this topic, and I wouldn’t bother contributing unless I thought I had something useful to contribute myself. I’ve got a couple of ideas about the best business models the print world could adopt, and I lay them out here, knowing full-well that I’ve probably missed something out really significant, but I haven’t heard these suggestions made before, so what the hell – here it is, see what you think:
I want to reference two different types of print media: newspapers and magazines. I’m defining magazines are anything that comes out periodically, but not daily. So a monthly, fortnightly or weekly release. Newspapers are (obviously) defined as anything that comes out daily. Clear? Great.
Okay, magazines first. Mags make money partially from advertising revenue, but given the lack of frequency of release (once a week, or once a month), and the lower circulation figures, advertising revenue doesn’t pay a magazines way. Magazines, by and large, make their money from the actual sale of the magazine.
So if you’ve got a magazine that costs £5 say, then about 50p goes on the printing costs (it’s obviously more expensive than a newspaper, all that glossy goodness), about 20p on the distribution, and I’ll guess a £1.30 commission for the newsagent. That means that the average £5 magazine makes about £3 for the publisher, and another 30p per magazine in advertising revenue.
So to create an equivalent digital version for iPads and other tablets, is pretty simple (assuming you don’t put all your content for free online. If you do, then you’ll have to follow the newspaper business model, see below for that). Basically, if you charge about £4.25, then minus Apple’s (or whoever) 30% commission, it’s still £3 per copy purchased, and you could charge the same for the ads, thus making the same amount of money for the dead tree magazine version.
But there’s a vital difference. Typically, newspapers charge a CPM rate for online adverts (Cost Per Mille, or cost per thousand readers), that’s 2.5 times higher than the ads in a dead-tree model. That’s because the ads can be dynamic, they can be more tailored and animated to suit the audience, and crucially, when someone wants to find out more about that product or service, they can just click or tap on the ad, and they can go to a website or video or virtual shopping cart or whatever.
So you can sell ads and generate 75p for the same ads in the digital version. So if you sell the magazine that retails in a dead tree version at £5, (which gives the publisher £3 + 30p = £3.30), you can sell the digital copy that’s exactly the same for just £3.65 and make the same money. (£3.65 minus the digital distributor’s 30% commission = £2.55 + 75p for ad revenue = £3.30 per magazine bought). And you can charge even less for the magazine and sell more which increases the ad and sales revenue further and makes use of an economy of scale.
Newspapers have a totally different problem. The toothpaste is out, and you can’t get it back in the tube. Without understanding what it really meant, the editors happily let the reporters and columnists at all the local and national news outlets publish their content for free online. They had to in a way, competing with all the amateur bloggers, etc.
So now the content is free online. No going back. The ad-revenue per thousand is better than a newspaper ad, but people dive into a news site, see a few pages, and leave. That means they’re only seeing a few ads, even if it makes the news organisation more money per ad.
With a newspaper, a client has to pay upfront for the total estimated circulation to see the ad, whether that was 100,000 people or ten million. And everyone who buys the paper, probably sees all 50-70 ads that are published in the edition.
Digital app-based versions can fix this. When you buy a copy of the electionic paper, it’s a really good and delightfully accessible version, and the purchaser will see all those ads, and those ads are more ‘valuable’ (ads you can tap on them and go to the company website, etc) but…
…But why would you buy it? Sure, they can sell them way cheaper than the paper versions, but all this content is mostly free online, and if you hide it behind a paywall, your listenership will just ditch you and go to your competition.
I think that the best thing to do is dramatically increase your circulation by making the app-delivery totally free. Now that means that lots of people who download the paper each day won’t necessarily treat the paper with the same reverence, but they’ll be way more of them, and they’ll see a hell of a lot of those ads. Let’s just (probably very inaccurately) go over some example figures:
A dead-tree newspaper sells for, say, 55p. Once you buy raw materials, (paper, ink, plates, getting all that stuff delivered to the printers), get the paper printed, get it distributed, and account for the commission from the newsagent, the paper makes about 5p. Obviously, you can’t sustain a newspaper on 5p, (especially as less and less people buy them – why when you can see it all online?), so they need advertising revenue to make ends meet. The average paper generates, say 50p of ad-revue per purchased copy.
Now each ad can be charged at 2.5 times more on a digital tablet edition, and even if someone doesn’t read each ad because they just browse (as it’s available free), you still negate that by having a huge increase in circulation, which will only grow as the paper versions vanish.
So if for a typical circulation, a paper that costs 55p generates 55p of ad/sales revenue. If the current circulation is a million say, that’ll be £550,000 of revenue per day. But if the average person only sees a third of the ads in the paper on the digital version, based on a 2.5 increase in CPM price and a conservative increase in circulation from one million to two million, you’ll see revenue of 40p per download. That means over 2 million downloads would give you £800,000 per revenue per day.
There’s probably a million things wrong with this long, inarticulate badly-written rant, but I can’t help feel that creative destruction will solve the current problems that written journalism is facing. And while amateurs and Twitter will now always be the first with breaking news, professionally produced and written journalism will still provide the high-value contextualisation that we crave. There’s a need for it, and I’m sure there will be a business model that will make it work.