Monday, August 30, 2010

Talking through the many iPad subscription issues with Apple; industry struggles to represent its interests

It is hard to say whether the magazine subscription problems that are much discussed in the publishing world are as big a problem as advertised, or a convenient excuse on the part of publishers who are struggling with tablet publishing just as they have this past decade or so with web publishing.

So rather than continuing to discuss this from the perspective of the tablet maker (because the tech sites have done a much better job discussing this issue than have the media sites) let's instead look at this from the perspective of the magazines, and specifically the circulation departments.
First, what do publishers really want? If you were to listen to those represented so far you would think that publishers fear getting locked out. That is, if Apple gets its way they, and not the publishers, will have all the customer data and publishers will be working in the dark.

This is partially true: by having Apple handle the sales transaction, Apple will be the ones getting the buyer's information, including credit card number, etc. But let's not exaggerate the situation here. Most consumer magazines only know the names and addresses of many of their customers now, having to learn more through research.

Even in B2B, where most magazines are free and the customer has to fill out a card in order to subscribe, many publishers have cut way back on the information they are gathering as 16 page BPA audits shrink down to four pagers. Worse, many publishers are dropping their audits altogether as a way of hiding the lack of qualified readers.

A few years ago I discovered to my horror that one of the magazines that had my name listed as publisher essentially had zero qualified readers, so degraded had the circulation director allowed the list to become that the magazine now was essentially reaching no one of value -- or at least we couldn't prove it was. The circulation director was horrified to find out that I had learned the actual condition of the reader file, having worked so hard to keep the truth from the publishers.

Much of this situation can be solved through a registration process -- one that is either required or incentivized through various means. This would have to be negotiated through Apple, but more on that later.

Second, let's be honest about subscription revenues. Here is where much of the talk on the tech sites is misinformed. Many magazine readers seem to think that the price they pay for a print subscription actually covers much of the costs expended to produce the magazine. (The same probably holds true for newspaper readers.)

This position is probably arrived at when one looks at the cover prices of newsstand magazines. iPad owners complain that it should cost them $4.99 to buy an e-edition if that is the same cost of a print edition -- after all, they guess, isn't the expense of the e-edition less than that of the print edition?

Well, yes, e-editions do cost less (theoretically) to produce than print editions. But the cost the reader sees on the cover, and the lower cost the reader pays for an annual subscription has no relationship to actual print and distribution costs. Most publishers understand that, so there is not much need to explain it much further.

But for the sake of non-media folk reading this site, here is a very brief (extremely brief) tutorial on circulation: most magazines derive the vast majority of their revenue from advertising. Money brought in from newsstand copies and subscriptions then simply needs to cover the cost of distributing the print copies, plus the overhead costs of the circulation department and services, etc. (Remember, I'm simplifying.)  If newsstand and subscription revenue actually generate a profit then oh happy days.

In B2B the situation is extreme: revenue derived from circulation generally is far less than one percent of total revenue (for controlled circulation magazines). And when you include revenue from services often handled by the non-advertising departments, like reprints, list rentals and the like, total revenue might reach five to ten percent. (We'll leave other revenue lines out like events, and the like.)

At consumer titles, especially those that are highly successful, circulation revenue can add up to much more -- but the point remains the same, money brought in when readers buy those individual copies and subscription do not keep the lights on for the whole magazine. (That's why circulation directors fight to control other revenue streams - it's a survival instinct.)

So Apple's 30 percent cut of app sales is, in the end, 30 percent of a relatively small number, and the cost savings enjoyed in the areas of distribution and finance probably easily justify the fee (and Apple knows this).

In the end, the issue is information sharing and here publishers have a legitimate beef -- but a The legitimate beef comes in there not being an easy, built-in way to get customer information to the publishers without Apple giving it away.

Think of Apple as your local newsstand. If a person walks up and buys an issue of Newsweek (rare, I know) what does the newsstand guy do? He asks for the money and that is it -- the publisher gets a sale, but no information on the buyer. That is a typical app sales in a nutshell.

So the issue shouldn't be those one time sales, it is in the subscription process. Here is where a registration process needs to occur.

There are three factors at play today that are effecting the relationship between Apple and publishers.

The first, which I have written about countless times, is that Apple does not seem to have good category managers in the area of media. The app approval process has been an embarrassment, which apps rejected because of their editorial content leading to cries of "censorship" and "Apple is the new Taliban". Apple needs to bring in industry professionals to manage the customer relations side of the media industry -- a media advocate, if you will.

Second, without strong competition from another tablet platform Apple has the game to themselves. If Apple were forced to compete to attract publishers then the playing field would be leveled and both sides would have to work together better. Right now if you want to have your magazine read on a tablet Apple is essentially the only game in town.

Finally, publishers themselves are a disorganized lot. Yes, there is the ABM and MPA, but both are geared up to lobby more on the east coast than the west coast.

This is changing, of course. The MPA recently named Christopher Kevorkian as their executive vice president for digital. Kevorkian used to be publisher of Sunset magazine, so he obviously gets the publisher angle. I see that Kevorkian graduated from UC-Davis -- let's hope he spends a lot of time in the Bay Area talking to both Apple and Google, this is where the action will be.