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The Daily Quest for Online Profits

Posted on Monday, March 21, 2011 at 5:30 PM

Part II. Success of The Daily launch is in question. The publisher is mum. Who knows if the start-up is a hit or a flop?

By William Dunkerley

The Daily, the new iPad-based multimedia publication of News Corp., is off to a quixotic start. In Part I, we covered the February 2 launch and focused on a number of possible pitfalls ahead. Now, as the publication is about to enter its third month of operation, there is very little to indicate that things are going well.

First, a free two-week trial period was extended to almost 7 weeks. PC Magazine indicated that the extension was issued as a result of "some stability issues and bugs." The original trial was credited to the sponsorship of Verizon. There's been no word on who's footing the bill for the extension.

Despite the extensively extended free trial, News Corp. has been evasive about the extent of readership. Publisher Greg Clayman told The Independent, "We're not disclosing the exact numbers (of downloads) but it's in the hundreds of thousands." He also declined telling exactly how many paid subscribers there are, except to say there are "more than one and less than 1 billion." Cute.

However, The Guardian reported "Although the Daily has been free so far, it is understood that a few thousand people have already signed up to the year-long subscription. News Corp has not released any numbers, but it is estimated that the figure is in the region of 5,000."

Meanwhile, AFP, the French news agency, reported that The Daily "has tallied hundreds of thousands of downloads since its launch a month ago its publisher has said." Beyond the ambiguous claim of "hundreds of thousands of downloads," there doesn't seem to be consistent and reliable information about readership.

It's hard to imagine that The Daily would be so tight-lipped about its audience size if the news were good. It's also hard to understand how it can be conducting a credible advertising sales effort while keeping the audience size a virtual secret.

In other advertising-related news is the puzzling absence of any information on the publication's website on how to advertise. There is no link to an advertising contact. There is no link to a media kit. Not even a rate card. It seems like quite a strange advertising sales strategy.

"Strange" may indeed be the byword for the orchestration of this launch. In addition to all the aforementioned concerns, there is the matter of what devices The Daily will work on. PC Magazine claims they were told that an application will be released for Android-based tablets within months. However, The Daily's own website claims that the publication is intended exclusively for the iPad. More apparent confusion.

Is It Even Legal?

The Daily uses the highly-controversial new Apple subscription system. It's touted as being as convenient as buying a song on iTunes. The Federal Trade Commission and the Department of Justice, however, are looking into the subscription scheme, according to Information Week. There has been a lot of speculation that it is basically unfair, if not even illegal. The Wall Street Journal ran the headline "Apple's Subscription Rules Raise Possible Antitrust Issues." What's more, Apple's demand for a 30 percent cut of revenue from subscribers who are new to the publication has raised a lot of eyebrows. Legal analysts seem to believe that the final result will depend on whether Apple is deemed to have a dominant position in the marketplace.

As a publishing issue, the 30 percent doesn't really seem problematic. Publishers are used to new subscriber costs often running several times that. What's more, Apple claims that if the publisher recruits a new subscriber, Apple will process the order at no charge. (At least that's what Apple seems to be saying.) But if Apple and the publisher are both out there selling subscriptions, that makes them competitors in that activity. And if competitors are conspiring on the subscription price, is that price fixing? Perhaps the legal analysts should be looking into that angle.

But It May Be a Moot Point

All this worry over whether The Daily's subscription arrangement with Apple is legal may be for naught. It won't really matter if the publication does not survive. Despite all the hype that the iPad is the up and coming substrate for magazines, some preliminary figures speak otherwise. They seem to be saying that the hype is -- well, just hype.

Media Post reports that, in 2010, "sales of digital magazines on the tablet computer have fallen significantly." Data cited indicates that Wired magazine's digital copies went from over 100,000 for the first iPad issue to 23,000 copies just 5 months later. Vanity Fair took a dive from selling 10,500 digital magazines down to 8,700.

While the numbers were tanking for these and other publications, the total sales of iPads jumped 565 percent through the end of the year.

I don't know what people are doing with all those iPads, but it doesn't seem to be reading magazines. Indeed, there is quite a dearth of objective data available about what iPads are really being used for. There's a lot of hype about what they might be used for. But not much hard data on actual usage.

Nonetheless, The Daily remains a pioneering effort in multimedia publishing, one worthy of our continued interest. News Corporation's Rupert Murdoch says he believes The Daily "will be the model for how stories are told and consumed in this digital age." Indeed, it may become that. But, for now, it seems to be hitting snag after snag. Unless things change, it may be the model for how not to orchestrate an innovative launch!

William Dunkerley is principal of William Dunkerley Publishing Consultants, www.publishinghelp.com.

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The Daily Quest for Online Profits

Posted on Thursday, February 24, 2011 at 10:55 AM

Part I. Magazine publishers have long lamented the absence of a successful model for online profits. Will the launch of The Daily show us the way?

By William Dunkerley

News Corporation's digital start-up, The Daily, is sure to be a model for the rest of us. What's unclear is whether it will be a model for what to do -- or what not to do!

The Daily promises readers an embarrassing richness of multimedia features: audio, video, enhanced photography. I've long advocated that publishers open up to the array of channels now available for bringing content to readers. The Daily certainly seems to share that advocacy. This start-up well could be a transformative publication in the evolution of our industry.

A lot will be riding on the implementation, however. Will the publication use the multimedia tools in a way that will enhance reader satisfaction? Will the enhancements help the reader to better understand the content? Will they intensify the reader's satisfaction with the publication? Or will the multimedia features be used simply gratuitously as bells and whistles? It's hard to tell at this early date in the life of the publication.

In fact, there is a lot about the publication that is hard to discern presently. News Corp. has put out a lot of very limited information on its newborn. And, some of the early media discussion of the product contains various takes on it that don't entirely agree. We've tried to sort through those for you in our reporting, but must admit that we're dealing with a market entry that does not seem to be entirely understood by anybody.

Device Specificity

The Daily is device-specific. It's an iPad publication. It may be available on other devices in the future. But, replicating The Daily's features on other devices will likely require an additional app or program for each device. This aspect of device specificity is one of two problems that should be high on any publisher's list of things to consider before jumping in.

There are other publications that are already available as iPad apps. They range from Marvel Comics to The Wall Street Journal. These apps, however, are likewise device specific. The prospects of making your magazine available for additional devices can be daunting. According to Richard Pradley, managing director of Semantico, an online services provider, "As yet no publishing infrastructure exists that can take a given work and repurpose it automatically for all available delivery platforms and operating systems." It takes a lot of expensive human intervention, he explains.

Bob Cohn of Bonnier, a large multinational publishing group, recently told Folio magazine, "We want to be on as many devices as we can logically handle." That may be fine for gigantic operations like Bonnier. For smaller magazine publishers, the budget needed for all that development may be elusive.

The second consideration related to device specificity falls in the category of industry modus operandi. A publisher that goes device-specific is stepping into the world of computer software and hardware. There, planned obsolescence is a way of life.

As publishers, we make our money by having ever-changing content in our publications. That's what keeps customers coming back. Paper has been the stable substrate for publication content for centuries. The iPad and other PDRs (portable digital readers) represent in effect new substrates born of the computer industry. Continued sales in the computer field is different in nature from that in publishing. It comes from new models, new versions. A lot of that is driven by the development of new technologies. Some of it seems to be marketing-driven, i.e., planned obsolescence.

With that in mind, what are the chances the iPad will still be around in 10 years? In 5 years? What's more, a newer technology may come to entirely replace the entire tablet computer category. Of course, publications will need to adapt to all these new developments. My point here is just that it is in our interests that our multimedia publications be developed in a way that does not leave us at the mercy of software developers and computer manufacturers whose own interests may be at variance with ours.

Who's in Control?

That leads to the question of who is the customer and who is the vendor in this equation.

If you look for parallels back in the print-only days, publishers had basically the printer and the Postal Service to work with. The constraints they imposed on how publishers did business and what they published were relatively minimal. Where limitations did exist, alternatives were available, albeit usually at higher prices. Many will argue that the Postal Service did little to ingratiate itself with publishers. The printers certainly did a lot. They each tried to out-do each other in serving publisher needs. I guess that's the difference between dealing with a monopoly vs. competitive entities.

But even the Postal Service didn't say that if you set a price for subscriptions delivered by them, you couldn't price the subs differently for alternative delivery. But that in effect is what many allege Apple's policy on subscription apps amounts to. It's hard to know all the ramifications with certainty. As Bob Cohn remarked about Apple, "...they haven't been too transparent."

Even with fledgling competition from Google, and from others on the horizon, Apple seems to have assumed the posture of a monopoly. The fact that The Daily seems to have kowtowed to that sets a bad precedent for our whole industry. Apple is certainly not coming across as a vendor wishing to court the favor of its publisher customers and prospects.

A lot of noise has been made about Apple's demand for 30 percent of the revenue from each subscriber that it brings to the publisher. But that doesn't sound like a bad deal to me. Many publishers are glad to spend 100 percent of the first year revenue acquired from a new subscriber just to get him or her. Profits come from renewals. Traditionally the cost for getting the renewals is very low. It's not clear how Apple would handle renewals, other than taking another 30 percent each time. That would mean after a few years the publisher starts to come up on the losing side when using Apple as a new subscriber source.

That's not the worse part, though. In publishing, selling subscriptions is not at all like selling music singles (which is where much of Apple's App Store experience lies). If they sell a single, it little matters whether the buyer is in New York or LA. But, if the App Store is selling subscriptions for a New York–centered magazine with New York–based local advertisers, it certainly does matter. The advertisers won't want to pay to have their ads downloaded all over LA for viewing by people who are not likely to become customers. This concept doesn't just apply to geographic considerations. It's relevant to things like age, gender, profession, interests, etc. Certainly the magazine's title, cover, and description may ward off some of the mis-fit subscription sales. But if something in your New York magazine somehow goes viral, you suddenly could be big in LA!

Plunging iPad Magazine Sales, and More

There are a lot of other issues raised by the advent of The Daily. One is the apparent nosedive in subscription sales for iPad magazines right at the time The Daily is being promoted. What's that all about? And recently, there are a lot of questions about whether Apple's iPad subscription program is even legal! We'll cover those issues and more in Part II of our business analysis of what The Daily means to magazine publishers.

William Dunkerley is principal of William Dunkerley Publishing Consultants, www.publishinghelp.com.

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A Magazine Startup Checklist

Posted on Monday, December 13, 2010 at 4:20 PM

An analysis of key factors to consider for achieving success, print or online.

By William Dunkerley

What considerations go into starting a new magazine? Often, the most important element is left off of everyone's list.

Someone recently asked a group of experienced editors and publishers about start-up considerations. Answers included a lot of good nuts-and-bolts issues -- things like digital delivery, printing, mailing, who will be the readers, who will be the advertisers, and on and on.

One item that did not come up: Will this new magazine be able to succeed? And if you think about it, isn't that the first question that should be asked?

Who wants to start a magazine that isn't going to succeed?

History shows us that a lot of the magazines that are started don't succeed. In that respect, a new magazine has a lot in common with a new local restaurant. A lot of them don't even last three years. Someone had come up with what seemed like a good idea. But it just didn't pan out.

What Goes Wrong?

Often, the failure of a new magazine is chalked up to contemporary economic conditions. Other culprits could include too much competition, inadequate capitalization, or poor management.

Are these the real reasons? Or are they just rationales for failure? Frankly, there isn't one item on the list that couldn't have been analyzed, tested, and anticipated -- before all the money was spent and lost. Maybe we should add "poor planning" to the list.

While the economy et al may have played a role in a magazine's failure, I've found that there is a single, more fundamental issue that underlies most magazine startup failures. It is that there was no real need for the magazine. That too is something that can be analyzed and tested in advance. But rarely is it done in any thoroughgoing way.

Needed by Whom?

A startup magazine that seeks advertiser support actually has two key constituencies: the readers and the advertisers.

A preliminary understanding of reader needs can be achieved by exploratory testing of your startup idea with focus groups. Once you've translated the resultant insights into a sample table of contents, illustrative articles, and graphic identity, you can put that all to a test with subsequent focus groups. And finally, an actual market test can help quantify what kind of reception your new magazine will get from potential readers.

On the advertising side, you've got to look at what the advertisers are currently doing. Where are they advertising now? How much money are they spending in each venue? Are they getting satisfactory results? What consumers are they trying to reach? Interview key advertisers and ask them what their marketing objectives are, and where they want to go in the future. Identify how your magazine can either fill a void or be more effective for the advertisers than existing options.

Is That All There Is?

You may think that if you have identified sufficient need on the part of readers and advertisers that you're good to go. But not yet. There is something else. There has got to be a symbiosis between the readers and the advertisers. That means the readers have got to have an interest in the advertisers, and the advertisers have got to have an interest in the readers. There has to be a mutual need!

From an advertiser point of view, the purpose of your magazine is to attract good, prospective customers. If it doesn't do that, you have failed your advertisers. And if you fail them, they will abandon you.

You have two tools for getting the advertisers what they want. They are (a) marketing and (b) content. Your marketing must be successful at attracting readers who will become good buyers for your advertisers. Your content must be something that can be effectively marketed to those readers. What's more, it's got to be effective in motivating readers to look through the publication so that they will see the advertisements. Content also should inspire reader trust and loyalty. Advertising will be most effective in that kind of environment.

The Checklist

Most magazine startup checklists deal with how to start a new magazine. This one is different. This is a checklist for whether to start a new magazine. Here it is:

1. Is there a need for the magazine?

2. What's your proof?

3. Will you create a symbiosis between readers and advertisers?

4. What's your plan for doing that?

Follow this checklist, and you'll be off to a good start on your quest to launch a new magazine, print or online.

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William Dunkerley is principal of William Dunkerley Publishing Consultants, www.publishinghelp.com.

What Ails Publishers Most

Posted on Wednesday, September 15, 2010 at 1:40 PM

What are the top issues facing today's magazine publishers?

By Meredith L. Dias

Over the last few years, you have likely watched many publications, perhaps even some of your own, fold under the pressure of the concurrent publishing industry and economic crises. Where did those publications go wrong? What one fatal error did they all make?

The answer may trouble you: There may not have been one fatal error. As we discovered in a recent STRAT survey we conducted, there are a host of issues facing today's publishers. We asked some publishers to identify their top problems, and their lists ran a fairly wide gamut.

Here are the top ten issues reported to us:

--Advertising sales
--Monetization of content
--Postage issues
--Distribution, printing, and paper
--Social networking
--Staff cuts/issues
--Rate cuts
--Circulation and subscription
--Changing reader trends

In other words, publications have suffered over the last few years for many reasons. Many of the aforementioned issues are, of course, likely related (e.g., staff cuts and economy, advertising sales and rate cuts, etc.). Still, as indicated by our survey results, broad strokes won't paint a clear picture of the recent publishing crisis. So let's examine some of these key issues in a bit more depth.

Monetization of Content

Publishers are having trouble monetizing their content on both the print and digital platforms. Peter H. Miller, president of Restore Media LLC, lists "monetizing digital media" as his number one concern. Conversely, Bill Kinross, VP and group publisher of Meating Place, tells us that his publication is having trouble "proving the value of print when other media platforms offer such detailed metrics and print doesn't."

Perhaps the most acute comment we received was from David Drimer, associate publisher of The Forward: "An irreversible dearth of print advertising forces an accelerated focus on digital operations, and nobody has yet created a viable business model for monetizing the Web that creates as much margin as print did in its heyday."

Publishers still have not discovered a winning formula for online profitability. The surging popularity of e-reading devices and apps has provided some major rejuvenation for downtrodden publishers, but print and digital content are still learning how to coexist in a mutually profitable way.

Going Postal

Postage issues were a common complaint among our print publishers, third only to advertising and monetization issues. David Drimer says, "Postal service is very poor throughout the U.S. for periodical mail, especially on the West Coast, so timely delivery is a challenge." Doug Cooke, publisher and editorial director of JAXFAX Travel Marketing Magazine, cites "continuously escalating postal prices" as a thorn in his publication's side.

It's no secret that the United States Postal Service, dealt a hearty blow by the Web, is suffering. The USPS is currently mulling over the idea of eliminating Saturday delivery altogether. The idea must first go through Congress, but the fact remains that customers are facing planned rate increases and, likely, imminent service cuts. Unfortunately, high-volume customers like magazine publishers bear the brunt. While planned postage rate increases constitute an annoyance for the average customer, "magazine publishers would see an 8 percent price jump, according to the proposals" (according to a Washington Post blog from July). Such a steep rate hike could prove devastating to print magazines already near their breaking point.

Staff Issues

Staff cuts constitute a major concern for many publishers, but not the only one. Tim Robertson, publisher of MyMac, mentions the high turn-over rate of stable writers. Another publisher mentions high corporate expectations. Several publishers highlight the plight of their editors, who are "being stretched too thin as we do more online and through webinars and seminars," says Bill Kinross. Sara Waxman, publisher and editor-in-chief of Dine Magazine, provides a three-item list that sums up the plight of a lot of understaffed publications:

1. Sorry
2. I'm in production right now
3. No time

Peter Miller mentions another problem of particular importance in today's publishing environment: "training old media people on new media." People who have cut their teeth on print magazines must now adapt to an alien frontier, where content is up-to-the-minute and technology changes constantly. A publication's success is now contingent upon the ability to keep current with industry and tech trends. This is difficult to accomplish when staff members who spent comfortable decades in print must first learn the basics, while new media pros surge ahead with new technology and social media solutions.

Rate Cuts

A few publishers identified competitive rate cuts as a major problem. One publisher told us, "Our biggest challenge is competitors that keep cutting rates to get business, destroying the marketplace for years to come. Multiple magazines in our market are slashing rates by 50 percent or more."

This is a prime example of shortsighted publishing strategy. Just as magazines that prematurely eliminate their print editions shoot themselves in the foot, magazines that engage in competitive rate cutting do considerable long-term damage to themselves, their competitors, and their advertisers. Richard Cress, publisher of CSC Publishing, Inc., sums it up with his "Top 3" list:

1. Selling ad space.
2. At full price.
3. While the rest of the publishing world discounts to the point where they lose money on every ad!

No Catch-All Cause, No Catch-All Solution

If only there were catch-alls in the magazine industry equation. If only there were one clear problem and one clear-cut solution. But this is not calculus or grammar. The rules of magazine success aren't so rigid and, for some, this lack of structure can be intimidating. What if you make a strategic gamble and lose? What if you do everything "right" and still lose money? What if you've engaged in several rounds of trial-and-error and seen no results?

Look to other publications for inspiration, but not concrete answers. The strategy that saved one publication could ruin another, and vice-versa. Magazines A and B may share the same strategic problems, but if they serve different audiences and industries, they will require different interventions. Magazines C and D may serve the same industry, but one may have a heavy social media presence, while the other may have a more profitable print edition. There are countless possible scenarios.

Your solution may come after months of strategic meetings. It may come from a magazine consultant. Who knows? It may even come from one of your own staff members, whose revolutionary idea changes the way your publication does business.

Meredith L. Dias is research editor of STRAT and Editors Only.

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Giving Up on Print

Posted on Wednesday, August 18, 2010 at 12:58 PM

Is ditching your print edition an advisable strategy?

By Meredith L. Dias

For some of you, eliminating your print edition and going digital-only may seem like an intuitive cost-cutting maneuver during these lean times. Imagine a profit and loss statement devoid of postage, printing, and paper costs. Tempting, isn't it? But think twice before you proceed.

You don't need me to tell you that times are tough in the print magazine industry. If you're a print publisher, your ad sales have likely taken a hit while postage, printing, and paper costs have increased. As a result, you've likely made some painful budgetary decisions over the past few years -- layoffs, editorial page reductions, rate cuts, and perhaps even changes to the physical size of your publication. Maximizing rapidly dwindling resources has become, for many, the new print media reality.

The Case for Stopping the Presses

Some publications have made the difficult decision to eliminate their print editions. Jim Mathews, senior director of online editorial and production of Aviation Week, says that his current digital edition "goes as text and PDF to email boxes, and [subscribers] are free to print it out when they need to." This eliminated "a swath of production costs while serving the reader better."

Mathews evaluates the respective benefits of print and digital. He acknowledges that "print will never go back to the same place in the hierarchy of value it once enjoyed when it was the only game in town." However, though the scales seem to be tipping in favor of digital, "print will always be better than electronic for certain kinds of things ... just as electronic is superior for certain kinds of storytelling and content delivery."

PC World magazine stopped producing its print edition in January 2009. Editor-in-chief Lance Ulanoff tells us the story behind the tech magazine's successful move to digital: "We'd spent much of the 2000s shifting our business to the digital spectrum, because it made sense for a publication covering the world of technology. In 2008, we looked ahead at the upcoming print advertising market and macro-economic conditions and realized that it wouldn't be wise to continue publishing in print. We had done so much in previous years to shift our weight to the digital side that when we did make the change, nothing in our process changed and we laid off only one employee."

The Case for Staying in Print

Not all print publishers have seen their publications ravaged by the recent economic crisis, though. "Printed circulation hasn't changed appreciably over the last decade," says Doug Peckenpaugh, managing editor of food product design for Culinology. "In my sector, people still like to have a printed version to carry with them or read in various locations -- for instance, on airplanes during work-related travel."

When STRAT surveyed over a thousand editors and publishers about giving up their print editions, many of them suggested the same: that there is still a large contingent of readers who prefer print editions. The challenge, then, appears to be finding the advertisers that will resonate with them.

For many publishers, the print edition is the heart of their multimedia presence. Jennifer Thiele Busch, editor of Contract, tells us, "We no longer consider ourselves a magazine, but rather a media brand with distinctive yet complementary print, online, and face-to-face components." Although Busch foresees a time when "current trends will move us toward reduced [print] frequency," she emphasizes that "the print publication remains at the core of the brand."

Print publishers are also fighting back against some of the anti-print rhetoric that has invaded the media discussion over the last few years. "Experts have been giving print a eulogy for quite some time now. The reality is that an online presence will never generate the kind of revenue print can," says Jesse Santiago, publisher and editor-in-chief of Texas Family Magazine. John Smalley, editor of the Wisconsin State Journal, agrees: "The notion of 'eliminating the print edition' is so far from reality at this point that I find it hard to comment. That's like asking McDonald's, 'How do you think your customers would react if you quit making hamburgers?' We're a two-platform business these days -- print and Web -- and to eliminate either would not make sense right now."

Making the Decision

Our survey responses ran a wide gamut. Most editors and publishers stood strongly behind their print editions. Some touted the respective benefits of their print and online editions. A few represented digital publications that have never produced print editions, or publications that have made the transition to digital-only.

What our responses didn't include: doomsday prophesizing about the future of print. There have been so many high-profile print publication failures in the last year (see: Editor & Publisher and Newsweek) that we've overlooked the publications that have remained afloat, whose print editions are still profitable and sustaining a broad reader base. They're out there. They're industry magazines, association journals, and niche publications. You may not recognize their names or know their editors, but take notice now. They have figured out how to survive a simultaneous recession and publishing crisis.

Many of the editors and publishers who spoke to us recognize the complementary nature of print and Web publishing. Deborah Lockridge, editor of Heavy Duty Trucking and Heavy Duty Aftermarket Journal, sums it up: "We see a real need for in-depth information that can be provided in print form, while our digital efforts tend to focus more on news and other more timely content."

In other words, print can do things that digital cannot, and vice-versa. There is, at least for the time being, a place for both in the new media landscape.

Meredith L. Dias is research editor of STRAT and Editors Only.

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"Great article. Started on 'The Benefits of Being a Multichannel Magazine,' and migrated to this one! Just started reading your newsletter and am very impressed with your acumen." --Jeff Gayduk, Premier Tourism Marketing Publications. 08-25-2010.

Coffee and Subscriptions: A Package Deal

Posted on Monday, July 12, 2010 at 2:58 PM

An experimental strategy for publishers.

By Kevin Roberts

In order to thrive in today's participation economy, traditional media outlets like magazines and newspapers will need transformational ideas. Especially when it comes to creating revenue in an age of free content.

Of all companies, Starbucks might have happened upon just such an idea. Next month, the coffee giant will begin offering free wi-fi in all of its American locations. No big deal in this -- but soon, Starbucks customers will also have unrestricted access to a variety of pay sites, including the Wall Street Journal.

This is an innovative way to avoid having to institute the dreaded "pay wall," without giving content away gratis. Publishers get paid for their content, they get audience for their advertisers, Starbucks gets to offer an exclusive service that will surely help sell more coffee, and customers save potentially hundreds of dollars in subscription fees.

As we've seen, the emergence of the Participation Economy has been both good and bad for the media industry.

Today, anyone with an Internet connection can access a wide array of content -- from the Washington Post to their friend's latest blog post, from the Drudge Report to the Colbert Report -- and decide for themselves what's worth their time. In fact, only 7 percent of Americans get their news from a single platform.

At the same time, technologies like blogs, Facebook, and Twitter allow every connected person to create, distribute, and comment on media without getting out of their pajamas.

The media, in all its various forms, has never been more engagingly diverse. But traditional media outlets, as we know, are in the lurch. The truth is, one way or another, high-quality content will need to be paid for.

Figuring out how to do that, without disrupting the dynamic media environment that free content has created, will require wild experimentation. If content producers are going to discover the breakthrough ideas that will keep mainstream media thriving for years to come, they need to adopt a philosophy of fail fast, learn fast, and fix fast.

Kevin Roberts is the CEO worldwide of The Lovemarks Company, Saatchi & Saatchi, www.saatchikevin.com.

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Why Newsweek Magazine Failed

Posted on Monday, July 12, 2010 at 2:58 PM

Are there lessons in what they did wrong that can benefit the rest of us?

By William Dunkerley

"We do not see a path to continuing profitability under our management." Those were the words used by Washington Post Co. chairman Donald Graham. He was announcing intentions to put the venerable newsweekly up for sale. Graham admitted, "We have reported losses in the tens of millions for the last two years."

That sounds like a stark admission of failure to me. Graham's announcement came after a well-publicized, extensive effort to turn things around.

But, a commercial magazine is supposed to be a money making machine. Investors put money in, the publication turns a profit, and investors receive a return on their investment. Apparently not so with Newsweek.

What Went Wrong?

A lot of armchair analysts are chalking up Newsweek's troubles to consumer flight to the Internet. This argument has common sense plausibility. After all, consumer reading habits are clearly
changing -- and at an accelerating pace. But common sense also told us that the earth is flat. And so, when we got into examining Newsweek's predicament more methodically, the consumer flight explanation didn't hold up.

For one thing, Newsweek voluntarily cut its own circulation. Consumers didn't fly away. They were, in effect, deliberately liquidated! The readers didn't leave Newsweek -- Newsweek left the readers.

"Newsweek Plans Makeover to Fit a Smaller Audience," reported the New York Times in early 2009. That "smaller audience" was the effect of a rate base cut. Newsweek earlier had been promising advertisers a rate base of 2.6 million. The makeover plan included dropping that to 1.5 million by January 2010.

Isn't Bigger Better?

Why cut circulation? How is that going to make more money? Was that a bad move? Actually, I believe that in principle it was a smart plan. If they had approached me at my consulting firm, I would have advised them to do exactly that. Bigger is not always better. The reality is that when a magazine over-markets circulation, it's easy to aggregate an audience segment that will have only a weak interest in the publication. They'll be poor renewers, thus making them expensive acquisitions. And, worse, they may be poor prospects for the advertisers.

Apparently, Newsweek realized that gung-ho circulation marketing had gotten them to that spot. Now, they wanted to make things right. Somewhere in that multitude of readers, there was a core group that would be the best fit for the magazine. Newsweek said it was looking to keep readers who are most interested in news, have higher levels of education, and greater affluence.

That's fine, as far as it goes. Unmentioned in that, however, is whether those particular core readers are going to be active purchasers of the particular products and services the advertisers are selling.

The First Fatal Flaw

Smart, wealthy, and educated readers are nice. They may be interesting people to rub elbows with at a social gathering. They can be influential friends. But if they're not good prospective customers for the advertisers, they're of limited strategic value as readers. The prime lever Newsweek should have had its hand on here is the link-up between the buyers and the sellers, the readers and the advertisers. Was there good synergy? Was the magazine bringing together appropriately matched buyers and sellers? There's a formula for getting this right. But it's not clear that Newsweek was using it.

The New Newsweek

Then there's the matter of redesign and repositioning. In early May 2009, Newsweek announced the impending changes. The article, entitled "Reinventing Newsweek," was written by deputy editor Kathleen Deveny. It explained at length that they would in effect be taking the news out of Newsweek. The reasoning was that consumers can find breaking news on the front page of the New York Times. At the same time, the article quoted Newsweek editor John Meacham saying, "We will always be about the news, and we will always break stories that are important to the country and to the world." That all sounds like a confused message to me.

Wouldn't it have been clearer to readers, and perhaps to Newsweek's staff itself, if they simply said they would be cutting back on breaking news and just covering those stories whose impact was the most profound?

By my count, Newsweek used about 350 words to spit out that message.

So if news is coming out of the publication, what was to go in?

Deveny's article announced "a new editorial strategy." She promised that readers will be seeing more "well argued essays." They'll also be hearing more from regular columnists on "some of the most pressing issues of our time." The intent of the new editorial strategy is apparently "to be provocative, but not partisan." Outside observers characterized the move as a shift to opinion journalism.

The final component of the new Newsweek is the graphic redesign. Its goal was to make the magazine "less daunting, more entertaining, and easier to navigate."

The Second Fatal Flaw

Newsweek set out to reinvent itself. Editorially and graphically. They did it. But their invention isn't what the situation called for. What was wrong with it? One thing is how they came to specify what needed to be done. They revealed two considerations:

a. "Some of these changes spring from what we learned from all of you during extensive market research." Does that mean that they asked their readers? They should have asked the prospective customers of the advertisers that they wanted to court. Those are the people they needed to attract as readers. Editorial content is the bait for attracting readers.

b. "Some of [the changes] reflect our own editorial goals and financial needs." I'm not sure exactly what that means. But it sounds like they're saying that some of the changes were made to satisfy themselves. That's certainly a bad strategy if you're looking for success in the marketplace. I wonder how satisfied those managers are feeling right now. I also wonder how satisfied the corporate shareholders are feeling over the self-centered shenanigans of Newsweek's managers.

I didn't specifically evaluate the graphic redesign. Certainly, it's always good to keep one's design attractive and functional. However, I'm not sure that design was an issue in the magazine's poor performance. Newsweek's managers may simply have wanted a fresh new look to signal to readers that things have changed. That's not a bad strategy. But a major redesign is a major undertaking unto itself. It is one that deserves significant management attention and involvement. As such, it also could be viewed as a diversion of management attention from the other critical and more central elements of remediating Newsweek's problems.

Unique website visitors since May 2009 to Newsweek.com (blue) and Time.com (green).

How did the market respond to the new Newsweek? The above chart plots Newsweek's website activity, compared to that of Time magazine. It shows a bump up around the time of the changes. Afterwards, things settled into a steep downward trajectory.

Make the Readers Pay

"Over time, we will increase subscription prices," wrote Deveny. It's hard for me to tell whether or not that's a smart strategy here. Lately there's been a general trend among publishers to grow the percentage of revenue coming from audience/circulation. In fact, that's been a trend in all recent recessions.

When advertising support drops off, publishers try to squeeze more revenue out of readers. Now that greater numbers of readers are online, publishers are experimenting with systems for extracting "micropayments." Our sister publication Editors Only has been running a series of articles on that topic. It seems there's still no consensus on the best way to do this.

The Third Fatal Flaw

While increased revenues from readers can be helpful, there is another side to that. Often I've seen that publishers try to extract more audience revenues, when what they really should be doing is solving the problems responsible for weakened ad sales. Is that a mistake that Newsweek made?

There's usually more to a shortfall in ad sales than just a flagging economy. Typically there are two major in-house causes of declining ad sales in a recession. The first is inadequate sales skills and strategies. They may be alright when the picking is easy and ad spending is at a normal level. But they prove to be totally inadequate when it becomes harder to convince advertisers to spend money with you.

The second cause is the fundamental business strategy of the magazine itself. Is it really efficient at gathering good, active prospects for the advertisers? When the economy is good, a magazine can be sloppy at doing this. But in a recession, when there is greater pressure for advertising expenditures to produce results for the advertisers, those publications that are weak in this regard lose advertisers quickly.

A Richness of Financial Resources

Despite the errors in Newsweek's approach to business, there existed a potentially mitigating factor -- one with the potential for breathing life amidst the assortment of fatal flaws.

That factor is the magazine's owner. Newsweek was indeed fortunate to be owned by the Washington Post Company. It possesses a richness of resources -- at least in terms of the financial resources available. According to the company's recent 10-K report, it had operating revenues of $4,569,731,000.00 for the fiscal year ending January 3, 2010.

We examined a Newsweek financial summary that was represented as coming from the "sale book" that was offered to prospective buyers. It shows that for 2007, Newsweek made about $30 million. But in 2008 and 2009, there were operating losses of $13.5 million and $28.1 million, respectively.

That all caused us to question the business imperative for putting Newsweek up for sale. Last year's $28.1 million loss is certainly nothing to sneeze at. But for a company whose annual revenues total more than $4 billion (that's $4 thousand million!), it is hardly a catastrophe. One wonders whether it is worth the embarrassment of corporate admission that they lack the ability to turn things around. Especially when one could reasonably expect a change for the better as the economy improves, even if Newsweek's business acumen didn't improve.

Adding to that puzzling conundrum is this statement by management at Washington Post Company's May 14, 2009, annual shareholders meeting: "It is not easy to reshape the economics of a magazine, but it's easier to do that than to reshape the economics of a newspaper."

Why does that add to the puzzle? It is because their newspaper operations are incurring losses that are more than 5 times higher than Newsweek's losses! (The company stays afloat with profits from its Kaplan educational services division.)

So, if it is easier to turn around a loss-making magazine than a loss-making newspaper, why wasn't the newspaper the first to go?

There seems to be more afoot here than plain and straightforward business considerations.

Is It Politics?

We were going over this analysis of Newsweek's failure in a staff meeting here at STRAT. At one point we came to the realization that, despite a number of strategic mis-steps, there was no compelling business reason for the Washington Post Company to sell Newsweek. They have the resources to carry it until the economy improves.

Could there be some political consideration compelling the divestment? Editorially, Newsweek had not been antagonistic toward the Obama administration. Nor had it been a good buddy to Bush. There didn't seem to be any obvious reason why Newsweek would be crosswise with the current political establishment. What about Clinton, we wondered? So we googled Bill Clinton and Newsweek. Not too far down the list of results we encountered the name of Michael Isikoff, Newsweek's investigative reporter who dug up the Monica Lewinsky story. Bingo. Was that it?

So for discussion, we floated the theory: When the Obama-Clinton coalition came to power, did someone tell the Newsweek folks to close up shop as revenge for the dirt Isikoff dug up on Bill? It was a highly speculative theory. But we thought to try it out on Michael Isikoff. I wrote him about the theory on June 4, a Friday afternoon. He responded on Saturday morning. He didn't flatly dismiss the theory, but said he thought it was "a stretch." Later on Saturday I explained to Isikoff our analysis that there did not seem to be a compelling business reason for Newsweek to be put up for sale. On Monday morning, Isikoff submitted his resignation to Newsweek. It's certainly interesting to muse over what influenced him.

But, just for the record, we certainly uncovered no evidence that any political considerations coerced Newsweek's sale.

A Trophy for a Billionaire?

Even if there was no apparent business need to sell Newsweek, it is intriguing to see how much interest there's been in buying it. At one point, there were reports of over 70 interested parties. That's quite astonishing when you consider that for prospective owners without Washington Post Company's multibillion dollar cash flow, the idea of losing almost $30 million year could be quite off-putting.

We asked the firm charged with managing the sale whether they were going to do a valuation to peg the nominal value of the property. They weren't. The plan seemed to be to allow the market to set the price.

But who would want this money-losing machine? For a while, Haim Saban's name was prominently mentioned. Forbes pegs his net worth at $2.8 billion. However, he's a mere piker compared to another whose interest was mostly on the q.t. That would be Leonard Blavatnik, a Russian-American businessman whose net worth Forbes puts at $7 billion. Was Newsweek to become literally a trophy for a billionaire? In the end, however, neither party apparently submitted bids.

More recent media speculation narrowed the field to just 3: businessman Sidney Harman (husband of Congresswoman Jane Harman), Avenue Capital, a global investment firm focusing on distressed securities and private equity, and businessman Fred Drasner, formerly of U.S. News and World Report.

But the Washington Post Company remains mum on who the finalists really are. That just adds to the theater of it all!

What Are the Lessons?

The high drama of secret moves to sell a real money loser, including shades of possible political intrigue, may provide us with entertainment. But are there any real lessons publishers can learn from the Newsweek episode?

I think there are.

Study the process recounted above by which Newsweek blundered its attempt to survive. Observe these three mis-steps: (1) They seem to have used a flawed process for identifying what remedial steps should be taken. (2) They may have put personal predilections ahead of business necessities. (3) They apparently diverted management attention to non-essential activities during a crisis period.

But the bottom-line issue here involves the fundamental and essential strategy for any publisher who needs significant advertising revenue to prosper: The publication has to be an efficient tool for collecting good, active prospects for a synergistically-related group of advertisers. There are proven techniques for doing this. The trick is to learn them and use them strategically.

William Dunkerley is principal of William Dunkerley Publishing Consultants, www.publishinghelp.com.

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Digital Readers: Second-Class Citizens?

Posted on Wednesday, June 09, 2010 at 2:34 PM

How will an audit treat your digital readers?

By Meredith L. Dias

The pre-release iPad buzz led the Audit Bureau of Circulations to change its definition of digital magazines. Now the rules are iPad-compatible, but do they solve the digital circulation conundrum in the long run?

Until recently, the ABC required a replica digital edition to be a mirror image of its print counterpart. The editorial content, advertising, and layout had to be identical. The March ABC ruling loosens these restrictions in order to accommodate new digital publishing trends, including iPad magazine apps. Now, the layout of a digital edition can differ from the print edition.

So what does this new ruling mean for magazine publishers? What can they do with their digital editions without compromising their circulation and rate base?

The New ABC Criteria

The ABC separates digital editions into two categories: replica and
non-replica. In both instances, the digital edition is defined as "a paid requested subscription/single copy or individually requested verified where access is restricted." A replica digital edition must "include the print edition's full editorial and advertising content and all editorial photography," while a non-replica digital edition must "maintain the same basic identity and contain content of the same editorial home as the print magazine."

In this regard, the non-replica digital edition may be attractive to particularly innovative publishers. It lends itself to creativity and experimentation within the medium. However, it is important to keep in mind that, according to the ABC, non-replica digital editions "shall not be totaled into rate base comparison data in ABC reports." Only replica digital editions factor into both the core magazine circulation and rate base figures. Non-replica data are reported separately.

Allowed Changes

What if an advertiser opts out of the digital version? What if a magazine gains additional advertisers in its digital edition? Can it still be considered a replica digital edition?

The ABC has taken into account several such contingencies. A replica edition may replace advertisements when print advertisers opt out of the digital edition, and even incorporate additional advertising into its pages. These elements will not compromise ABC compliance. Enrichment of content with links, audio, video, etc., is also permissible under the new ABC guidelines.

Potential Problems

But what if a magazine cannot obtain permission to reproduce a print edition photograph in the digital edition? According to the ABC in its "Qualifying Your Magazine's iPad Edition" article, "If a consumer magazine uses an editorial photo in the print edition but is not able to use that photo in the digital edition (due to copyright or other reasons), the magazine cannot qualify and report the digital circulation as replica."

Given the sometimes problematic nature of permissions in today's increasingly complex copyright climate, this kind of rigidity may hamper magazines who rely heavily upon freelance photographers in particular. While the word "replica" certainly indicates a mirror image, it seems punitive to disqualify magazines who, through no fault of their own, are unable to obtain digital permissions for a photograph -- particularly when substitutions are permitted for print ads in the event of an opt-out. Why the leniency in terms of advertising and not editorial graphics?


The new ruling, while a step in the right direction, keeps magazines tethered to their print editions. A publication can certainly experiment with its digital editions, but deviating too much from print means classification as a "non-replica" digital edition. This category represents a concession, rather than an incentive, to innovative publishers seeking to break new ground in their digital editions. Core circulation remains a print-oriented metric.

While print circulation figures seem to be tabulated under the assumption that every print subscriber will open the magazine, publishers of digital content must prove that digital readers have opened their digital copies (via download records for 'push' delivery or access records for 'pull' delivery, according to the ABC). In other words, the digital subscriber must cement his validity by "opening" the issue before being counted. These rules prevent fraudulent or inflated digital circulation claims by digital publishers, but also seem to hold the digital subscriber to a higher standard of engagement with the content than print subscribers.

Embracing Technology

Print is far from dead. In some segments, it is still king. However, does this mean that magazine publishers should be required to apply their print formula to digital editions? What works for one will not necessarily work for the other.

There is an abundance of available technology that might revolutionize digital editions, but it remains largely untapped. In order for magazines to evolve, the very concept of what a magazine is must change. We must adapt our print-oriented conceptualization of magazines and allow digital editions to become more than mere replicas, more than supplementary, second-class circulatory citizens.

The ABC allows publishers to use existing technology to an extent -- editors and designers can enhance the digital edition with multimedia bells and whistles. But they must do so with the print edition in mind, presenting "editorial and advertising content ... in a fashion that is similar and consistent with the print publication." In this regard, the digital content remains only an extension of print. The magazine is free to develop a non-replica edition but, as mentioned earlier, readership of that edition will not factor into rate base comparison data or core circulation.

The Future

Still, the ABC changes help to move the magazine industry forward. The amended definition of digital editions will help publishers to incorporate more digital readers into their rate base and core circulation. However, because the very concept of magazines remains rooted in the print model, it is still a challenge to deliver content across multiple platforms to diverse audiences. And when something as simple as a photo substitution can disqualify a digital edition as a replica, publishers must walk on creative eggshells when developing their replica digital editions.

Perhaps the concept of circulation itself needs to change. Circulation auditing still focuses on print circulation numbers, counting digital readers in core circulation only when the product they receive mimics print. Should the advertisers and watchdogs expand their concept of core circulation to include diverse editions under the same brand? This would allow digital editions to evolve independent of their print counterparts. It would allow them to embrace the multifaceted existence made possible by today's technology.

(To read more about this topic, see William Dunkerley's Q&A article about auditing digital circulation in his consultant blog.)

Meredith Dias is the research editor of STRAT and Editors Only.

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