The following is a question posed by an online ad guy, who’s worn both the publisher and ad sales exec. hat. I admit it might be perceived as near sighted and probably unrealistic in so many ways. After all, while “anyone” can publish online, it costs money - plenty of it - to publish print, be it newspapers or magazines. But the arguments for “why we should pay for print content” don’t add up.
How so? Read on. The following probably applies to newspapers as well, but to make my point, I’ll use the following real-life example with magazines first.
What Really Drives Revenue: Subscription vs. Advertising Sales?
Since my days studying finance, I have subscribed to The Economist, Business Week and Fortune. When I worked in men’s publishing and took on Maxim, FHM, Stuff, GQ, Esquire, Details, Men’s Vogue, Playboy, etc., I got those at the office but never subscribed to them. I used to work in a convenience store ages ago, so I did my fair share of reading, be it Rolling Stone, US Weekly, or Penthouse Forum. Yikes, did I just admit that?
So the only magazines I’ve ever paid for have been The Economist, Business Week and Fortune. But, all of those magazines have leveraged my eyeballs and demographics to advertisers and made money indirectly.
When my subscription with The Economist ended years ago, I didn’t renew. Fortune ended last year, I did not renew. Business Week is about to expire, I won’t renew. I got 3 free issues of Economist again last week by way of an online promotion but I won’t subscribe afterwards. Did I just admit that? Yep. No qualms either.
I presume a lot of people are like me. Particularly men. Women still tend to buy magazines quite a bit more. Yes, that’s a generalization, but it’s probably very true. When you work 6 years in men’s publishing, there are some things you just know.
Anyway, if the choices are a) get me to read your magazine for free or b) I won’t buy your magazine… then
Why not make magazines free? Or almost free?
[A select few can continue to charge (SI, Time, etc.) but even then, I only read those when I’m at my inlaws, well, Time anyway, I haven’t read SI since my old days as a publisher of men’s content when SI was an indirect competitor. ]
The Accounting Incentive to Go Free
One reason why this makes sense is that whatever media companies report as subscription revenue is an approximation, at best. The accounting rule is:
For subscription sales, GAAP also calls for recording a reserve for estimated future cancellations (including bad pay) on bill-me orders. Cancellation rates of 20 percent to 30 percent of total subscriptions are not unlikely and in some cases may go as high as 50 percent or more for certain promotions.
The Advertising Incentive to Go Free
Between 2000-05, I was VP of Ad Sales for a certain online publisher. Maxim would “throw in” online to their print advertisers and take away any incentive for those to spend money with me. Playboy would do the same. It was frustrating. And then if that was not enough, they would [allegedly] bribe (figuratively, of course) media planners with invites to parties with scantily clad women. Over time I won accounts, but it was slow.
How Can Print Companies Reverse the Tide?
No one is saying that magazines or newspapers will disappear, but if the magazine ad market is roughly the same as online is, why not start to throw in print exposure to get more money online, where the growth is heading anyway.
In 2005, in the US, magazines garnered 11%, or $22B, while the Web garnered 5%, or $10B. I have some figures here. Yesterday we learned that online ads garnered nearly $17B, that is roughly 7-8% of total advertising dollars spent in the US… if people spend 25% online and marketers spend 8% online, what do you think is going to happen over the next years? Online advertising will be much bigger because less and less people will read magazines and print and opt for the Web.
That does not bode well for print companies, particularly magazines. Newspapers have their own share of problems. But the truth is, if it’s a) charging me $1 per issue - which I won’t buy or b) giving it away for free where they’ll add a reader, why not give it away?
If there are five dailies in my city, I won’t ask for all five, I’ll get one, my wife maybe another. You get the right demographic, but you get a lot more eyeballs. And it’s once again all about eyeballs, no?
Making People Pay for Print is Backwards!
The only way to even this out is by giving an economic incentive to read print. But if digital content is free, yet print content is not, and it’s less accessible, and not timely, etc., then why on earth must I pay for the inconvenience?
Two questions:
1 - Why would anyone pay for print content in this scenario?
2 - More importantly, why would publishers produce print content if there’s no economic incentive to do so?
The simple reality is that when digital content - which I call the new software in that profits are infinite once it’s produced - is available for free and publishers can generate ads against it forever, why would content producers not go all digital. The only way to make money for print, really, is by boosting readership/circulation so much that advertisers have an incentive to spend money with them.
It’s the Distribution, Stupid
I know what you’re thinking. What about the costs?
As a publisher of two books, I can tell you that the marginal cost of printing is next to nothing. The real cost is in distribution, and like the Economist example of me getting three copies for free shows, acquisition of users - using the Web - is relatively low. As such, the total cost of print will be far lower if the printing costs are extremely high and the customer acquisition is done mainly online. Furthermore, think about it, if print were free, would you not go after it? They would not need to really advertise to you? Print companies advertise quite a bit because they want you to spend money. But if they were free, you’d be chasing them.
Bottom Line: Publishing and Paying for Print is Inefficient
This is an disequilibrium that needs to be accepted and resolved. Only by making print free does it get resolved.
Suggesting that magazines go free is highly counterintuitive, but as a print publisher, you are fighting for a rapidly shrinking pool of ad dollars. And maybe, by going free, it’s the only way to preserve your business.
But the fundamental idea is that in a few years, will print advertising really be that separate from online advertising? Probably not. They will be further connected.
Help Wanted: Online Relevance
In fact, the main challenge for print companies is that they lack the dominance they have offline in the online space. The only way they can leapfrog the four horsemen that are Google, AOL, Yahoo! and MSN is by bolstering their offline offerings.
The only way that will happen, as my example illustrates, is by going free.
Is the Magazine = the Music CD?
What made me think of this, frankly, is that CDs are no longer the main revenue drivers for music artists and record labels. At least it should not be. A lot of bands tour to make money. I always think of the Pussycat Dolls, whom I did not even know all that well, until I saw their reality TV show. I’m sure they did quite well in tour sales, merchandising, downloads and yes, CD sales. But if CDs are now supporting everything else, should magazines follow that route?
If Business Week, Fortune and The Economist were free, and most magazines were too, we would only choose what we really wanted to read and drive up circulation.
By doing so, it would slow down the death spiral some magazines are, no?
Am I crazy?
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