Digital Publishing: Solutions for Content Providers

Newspaper, magazine and book publishers are presented today with challenges to their core business model. Revenue from readers and advertisers is in decline and the opportunities for shoring up these losses are slow in coming. The vast majority of daily newspapers in the US and Europe provide their content online without charge and internet access is available in over 80% of all households. Free web content is, in affect, stealing subscriptions away from the very publishers providing the content. In the US the decline of the newspaper industry has taken on momentous proportions. On average half as many journalists are employed in the US today compared to 1990. Declining readership automatically leads to a decline in advertising revenue. In addition, the readers who tend to move from paid print media to free online media belong to the younger generations, groups particularly attractive to advertisers. Although advertisers are moving more and more to the online market, the vast majority of revenue generated through advertising remains in print. The online market has not been able to generate the levels of revenue commonplace in the print market. According to Jack Shafer in his 2006 article on slate.com, a newspaper gets about one-tenth or one-twentieth the advertising revenue for an online reader as it does for a print reader.

This article is designed to sum up the present market situation for content providers, make some predictions about the future and present various solutions for maintaining subscription and advertising revenue.

Rupert Murdoch, CEO of News Corp, said in August, 2009 “Quality journalism is not cheap, and an industry that gives away its content is simply cannibalising [sic] its ability to produce good reporting”. He continued by saying that his news sources, including the Times and The Sun in the UK, and the Wall Street Journal and the New York Post in the US, would soon begin charging for online content. The New York Times has also announced that it will severely limit access to free news on its website from January, 2011. These radical, yet bold moves could signal a major change in the newspaper industry and a last-ditch effort to regain revenue. According to Richard Pérez-Pená (New York Times, January 20th, 2010), “Starting in January 2011, a visitor to NYTimes.com will be allowed to view a certain number of articles free each month; to read more, the reader must pay a flat fee for unlimited access. Subscribers to the print newspaper, even those who subscribe only to the Sunday paper, will receive full access to the site without any additional charge”.

While the newspaper industry is suffering the most from the decline of readership and ad revenue, the future of the magazine and book industry is also far from certain. A new generation of tablet PC’s like Apple’s iPad are causing quite a stir among industry analysts. If tablet PCs turn out to be what they promise and present such an enjoyable reading experience, consumers may begin shifting to digital magazines and books. As can be seen in the music industry over the past ten years, new technologies, including iTunes and mp3 players, can have a far-reaching effects on revenue models. The overwhelming majority of revenue from music sales today comes from online services. The film industry is also presently going through a revolution due to the rapid rise in online sales. Blockbuster, the market leader in video rentals, has recently declared bankruptcy, largely due to competition from online and mail-in services like NetFlix. The illegal distribution of movies over the internet, moreover, will certainly influence box office and rental sales. New technological innovations and changing consumer behavior may also encourage magazine and book readers to migrate to digital reading devices.

As can clearly be seen, content publishers need to react to changing conditions. We can assume that newspapers will soon discontinue or severely limit free web news. Book publishers will increase marketing efforts in electronic publishing. Magazines will begin offering online, interactive versions of their magazines. Is that enough, however, to help newspapers regain levels of revenue previously gained through ads and subscriptions? Publishers need to create new business models that serve the needs of the new digital generation. High quality journalism has its price. Some may argue that newspapers and magazines used to be over-inflated institutions with too much power. It can hardly be of doubt, however, that newspapers and magazines play a vital role in a democratic society. They help form public opinion and thus must remain diverse and independent. Although there is a myriad of so-called bloggers out there reporting and writing news articles, the “blogosphere” can not be a replacement for professional journalism. Many European countries guarantee the continuation of independent news through state-sponsored public television and radio. The dominance of private media outlets in the US should encourage people to look more closely at the European model.

How, then, should media publishers respond to the threat to their traditional business model? First, they need to move away from free online content. High quality journalists cost money and that money has to somehow be earned. It’s a risky situation and no media outlet wants to be the first to shut down free access to their website. People are worried that if they limit access their readers will just click over to the next free website. This will drastically reduce website visits, leading to a reduction in advertising revenue. Newspapers will also lose access to readers and publishers ability to communicate with them. If, however, major outlets like the New York Times and the Wall Street Journal set the stage for subscriber-only web news, it will make it easier for other to follow in their tracks. The loyalty of readers to their local newspaper should also not be underestimated. Web users will always find free news content, but if their favorite local newspaper is no longer available they may well feel inclined to pay.

The second response publishers need to take is to look carefully at their customer’s behavior. What are they willing to pay for? How much are they willing to pay? What type of information are they looking for that goes beyond simply a digital version of the printed publication? Over the past years consumers have grown used to getting information for free. It will take some work to convince readers that quality journalism is worth paying for. According to a survey by the Nielsen Group in February, 2010 of 27,000 consumers across 52 countries, 40% of consumers are willing to pay for newspaper content online. That rather optimistic figure is, however, somewhat dampend by a big ‘if’. Nielsen also found that 70% of the people surveyed would only pay for online news if it was better than that which they currently get for free. That can be interpreted to mean that consumers will avoid paying as long as possible. As long as they see opportunities to get the information they are looking for for free and as long as the quality is ok, they will be hesitant to pay. Publishers are then in a situation where they have to compete with multiple content providers. They need to create content that is superior to the competition. The fact that free content is not going to go away quickly makes it difficult to compete. If one farmer (farmer A) is offering slightly blemished apples for free and farmer B is offering perfect apples for 2 dollars a kilo, few will refuse the free ones. F armer B can, though, appeal to the consumers conscience by mentioning that farmer A stole his apples (assuming this is the case). Farmer B could also sell a few apples if she proves that her’s are organic and the other guy’s are not. Established newspaper and magazine publishers have the resources, experience and understanding of the market to make that bold move and begin offering excellent digital content. Many consumers will recognize the superior quality and be willing to pay.

In judging consumers willingness to pay for online content it is necessary to look at recent software and hardware developments. The readiness of consumers across the globe to pay for services online has grown drastically over the past ten years. Platforms like eBay, Amazon and iTunes have proven that people are willing to pay online. ECommerce today plays a central role in business activities. One reason for the success of online systems like eBay and iTunes is the ease of use and this is key to the success of paid news content. The astronomical increase in sales of music, Apps, movies and now books at Apple’s iTunes Store is a sign of the willingness for users to pay for online content. Apple’s easy-to-use, click-and-pay system has been very successful and has lowered the psychological barriers to paying online. People do not want to have to register separately each time they go shopping. Systems like PayPal have also made online payments much easier.

Another aspect is the amount of products available at one source. If someone is looking for used goods or bargains on new goods they hardly need to look further than eBay or Amazon. A music or film enthusiast can be pretty certain that by visiting Apple’s iTunes she will find what she’s looking for. This does, unfortunately, speak for centralized services and is not particularly conducive to anti-trust policies. There is justified critique that Apple, for example, has become too powerful in the music sales industry. Perhaps future open source platforms can successfully deal with these concerns. Nonetheless, consumers do respond positively to a single software solution that addresses all of their needs. It would be terribly time-consuming and discouraging if one had to visit multiple websites in order to find the best offer for a certain album. If newspapers, magazines and books were also available on such a popular platform, it would significantly increase consumers willingness to pay for such digital media.

Aside from software, attractive hardware is also key to judging consumer’s inclination to pay for online content. Despite the fact that computers and the internet have become so ubiquitous, we still prefer holding our newspaper in our hands and reading it at the dinning room table with a cup of coffee. Few people actually prefer reading a book on their laptop. What about tablet PCs? Are they going to change our reading habits? Is the hype about Apple’s new iPad just a hype or do people really enjoy reading “For Whom the Bell Tolls” on that nifty, little device? It is too early to tell where the development of improved “eReaders” will lead and how consumers will react. The chance that it will encourage people to read digital material, however, is significant and thus should encourage publishers to invest in the development of digital content.

A third step publishers can take to react to the new landscape in their industry is to cooperate with online platforms or create their own. The German Spiegel magazine is now available as a subscription only “App” for the iPhone and iPad. The New York Times also offers a commercial App which provides a more user-friendly version of their daily paper for mobile readers. Apple recently added books to it’s iTunes Store and is apparently planning to present a newspaper subscription platform for the iPhone and iPad (“Apple to announce subscription plan for newspapers”, John Boudreau, Sept. 14, 2010, San Jose Mercury News). Apple wants to take a 30% cut of the subscription fee and 40% cut of the advertising revenue. To what extent the newspapers will have access to the subscriber’s information remains a contentious issue.

The New York Times has announced the creation of Press Engine, a platform designed to help publishers deliver their content to digital readers like Apple’s iPad. This system differs from Apple’s planned newspaper publishing through the iTunes Store in that the publishers will be able to control their own advertising and subscriptions. The U.K.’s Daily Telegraph and the Dallas Morning News are among the early adopters who plan to contribute to Press Engine.

Google is also rumored to be preparing its own version of a subscription platform for news content. Googles Newspass would provide a system allowing publishers to charge readers for content.

The German company, Neofonie, is planning an alternative platform. It is also the producer of the tablet WePad. The Bertelsmann Direct Group und Grüner+Jahr will launch it’s own digital publishing platform called “Pubbles” at this year’s Frankfurt Book Fair in October.

The fourth, and perhaps most difficult, measure publishers need to take is to increasingly invest in developing new concepts for digital content. It is not sufficient to simply put a pdf Version of a newspaper online and expect readers to jump at the offer. The digital generation has become quite sophisticated and has high expectations. Moreover, as mentioned above, there needs to be a tangible increase in the quality of the content to encourage consumers to pay. Digital publishing opens an entirely new mix of possibilities in interacting with readers and consumers. Digital media has a set of issues that differentiate it from printed media. Print media has been, of course, limited to ink on paper. Now, with publishing solutions for the internet, iPads and high-resolution smart phones, publishers can utilize video, audio, 3D and animations to engage new readers. These technologies also offer new opportunities for advertisers to communicate their message.

One major aspect now available to the publishing industry is video content. Not only can advertisers utilize this medium, more importantly news, analysis or text book content can integrate video material to enhance the message. We will increasingly see a merging of print, audio and film. Up until now television has not been able to integrate text and print media has not been able to integrate video and film. Just imagine the possibilities if the New York Times could utilize video technology just as successfully as ABC or CNN.

The possibilities for improving upon the format for transmitting news and books continues from there. Text books on iPads could include interactive quizzes, physics simulations or virtual chemistry experiments. Digital newspapers can offer expandable images, audio clips and interactive, 3D animations to their readers. The creation of this content obviously is costly. Many assets, however, are already available at the publishing houses and need only be converted and integrated. By simply viewing some of the websites of major newspapers it is, moreover, apparent that publishers are already investing in the development of multimedia content. Up until now, though, they have been giving it away for free.

Taking a closer look at developments in the text book industry also helps gain more insight into the choices publishers need to make. In early 2010 a consortium of educational publishers, including McGraw-Hill, Houghton Mifflin Harcourt and Kaplan teamed up with the company ScrollMotion to begin producing textbooks for the iPad. Other eReaders like the Kindle were seen by the group as insufficient for the needs of students. Evan Schnittman of Bloomsbury Publishing names three types of reading which need to be addressed when creating digital material; extractive reading, immersive reading and pedagogic reading. Extractive reading, for example looking up synonyms or definitions in a dictionary, is conducive to digital media and already widespread as can be seen by the success of Wikipedia. Fast and expansive search machines make reference work on the computer much easier than paging through a stack of encyclopedias on your desk. Immersive reading refers to reading books, journals or extensive articles. eBooks are addressing this market and tablet readers are serving these needs. The third type of reading, pedagogic reading, represents the greatest challenge for content producers, school book publishers in particular. Pedagogic readers are, for example, studying a chemistry textbook in preparation for mid-term exams. Serving this group of readers has proven to be elusive. Of course, students avidly use the internet to prepare for exams or to do research for a report. School book publishers, however, are confronted with the daunting task of moving material into the digital world. Could tablet PCs like the iPad be the solution to moving digital material into the classroom?

In order to save their business model, newspaper publishers will need to develop new concepts for regaining lost ground due to free internet news. Magazine and book publishers also need to react to changing technologies and reader’s habits and increasingly invest in digital publishing.


References

“Zeitungen rüsten sich für digitale Zukunft”, Sept. 22, 2010, Schwäbisches Tagblatt

“The Times to Charge for Frequent Access to Its Web Site”, January 20th, 2010, Richard Pérez-Pená, New York Times

“A Textbook Solution”, Elizabeth Weil, Sept. 16, 2010, New York Times

iPad and Education, http://www.apple.com/education/ipad/

“Apple to announce subscription plan for newspapers”, John Boudreau, Sept. 14, 2010, San Jose Mercury News (http://www.mercurynews.com/business/ci_16075454?nclick_check=1)

“Changing Models: A Global Perspective on Paying for Content Online”, Nic Covey, February 16, 2010, nielsenwire, (http://blog.nielsen.com/nielsenwire/global/changing-models-a-global-perspective-on-paying-for-content-online/)

“War’s das?”, October, 2009, Kurt W. Zimmermann, NZZ Folio

“Murdoch signals end of free news”, August 6, 2009, bbc news, http://news.bbc.co.uk/2/hi/8186701.stm

“Moving into multiple business models, Outlook for Newspaper Publishing in the Digital Age”, 2009, PriceWaterhouseCoopers

“Google’s Newspass: Is the King of Free About to Help News Providers Get Paid?”, David Carr, June 20, 2010, New York Times

“Chronicle of the Newspaper Death Foretold, The newspaper industry knew it was doomed 30 years ago”, Jack Shafer, November 30, 2006, www.slate.com