Solving the Tablet Profit Puzzle

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By: Jim Rosenberg

Part 2 of E&P‘s June cover story on tablets.

Devising a model for income is at least as tricky as figuring how to invest in product development. As device choices grow and prices shrink, bundling hardware at a discount with subscriptions may be less costly but also a lesser incentive.

“Right now we’re not talking about bundling the devices,” says Craig McKinnis, head of USA Today’s content-licensing project. When Plastic Logic launches its Que reader, owners will be able to buy content from USA Today for a dollar a day or $13.95 per month.

At the Los Angeles Times, Editorial Business and Planning Director Sean Reily says the paper “will continue to actively explore” bundling, but for now, the economics doesn’t work, with people only just moving to e-readers and the advertising proposition still in question. Bundling “was an early level of thinking that is still very possible,” he allows — but with little or no advertising, “that’s just too big a revenue loss.” If publishers were to push now to migrate readers off costly but ad-supported print onto e-readers, he says, “the faster you did it, the faster you’d go out of business.”

And so far, it seems only Skiff and WeTab are at pains to let publishers know that they will facilitate sales without coming between newspapers and their customers.

For advertising, newspapers must figure not only how to sell and satisfy accounts for ads on different devices, but also if and how the income will be shared, with iAd ready to hand Apple a 40% cut. Had publishers created the business, says Reily, we’d see “gold subscriptions” to the paper or any other distribution channel. “But we didn’t create this world, and newspapers are mostly reacting — and their customers will play a big role,” he says.

Meanwhile, “cutting their own path in the world,” the very largest papers don’t need and will be slowed by organized efforts to rationalize advertising across devices and stores, says Reily. They don’t need deep penetration in select markets to get satisfactory numbers, he adds, while others, even big dailies, must figure out how to sell, process and manage advertising as more devices appear.

Gannett Digital Vice President Matt Jones points to a shift with the iPad away from Kindle transactions’ tether to Amazon to an arrangement that could use iTunes as a billing mechanism, with information presumably going to publishers and a share going to Apple. Time Inc., he notes, was pushing for iTunes monthly recurring subscriptions.

The Wall Street Journal took an approach that consultant Amy Webb calls a “smart workaround, where users download the application to their mobile device, but then go off-application and to the Web to make subscription purchases.”

Another route to retaining control of the business is through industry groups, like that forming for magazines, e-reader “ecosystems” proposed by two service and device suppliers, and a consortium proposed by News Corp.

Though he realizes publishers initially will have to get comfortable with various billing schemes, Jones adds, “That’s where I’d expect to see a lot of standardization occur soon.”

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