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June 10 2010

15:00

The Newsonomics of tablet ad readiness

[Each week, our friend Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of the news business for the Lab.]

Are you ready to receive? That’s the question news company should be asking themselves this month, as the second half of the year — with its unexpected flow in mobile ad dollars — beckons.

The numbers are mostly anecdotal at this point, though as some of us forecast, tablets promise a new, significant source of revenue for the companies that are ready to play the tablet game, and play it well.

Among the early evidence, reported by AP’s Andrew Vanacore, are:

  • $50 CPMs ($50 per each one thousand views) for USA Today’s iPad ad, as compared to maybe $10 for its web ads.
  • Irrational exuberance! Brian Quinn, WSJ’s VP/general manager for digital ad sales, says overall ad spend is increasing because of the iPad version, not just switching dollars from one platform to another. “Out of the gate, there was an exuberance about this,” he says.
  • Chase Sapphire, which is a New York Times iPad sponsor,  says its ads are getting a remarkable 15 percent clickthrough rate. That’s 150 times the rate of an average web ad.

Add to that the July 1 launch of Apple’s iAds, which will introduce ads within iPhone and iPod Touch (but not yet iPad) apps, and which will begin with $60 million in sales, with such companies as Disney, AT&T, and Best Buy participating. You can bet that when the program launches on the iPad, a vastly superior ad medium given the screen size, it will do well. Even just on the “phone” side of the business, the iAds launch should give Apple — and, importantly, apps — almost half of the mobile ad spend in the U.S.

Want a little flavor to understand advertiser enthusiasm? Check out this Steve Henn Marketplace report featuring a VP for The Gap. She’s near-ecstatic in describing her enthusiasm for the iPad/tablet as a way of selling stuff and gaining customer knowledge.

So, yes, maybe the iPad ad euphoria should come with a few grains of salt. But, still, the “multi-touch” immersive future, painted by Steve Jobs and talked up by the big digital ad agencies (themselves looking for new reasons to be in the supply chain) is upon us.

So, are publishers ready?

I had a conversation recently with someone who runs a digital division for a major newspaper group — smart guy, a pioneer in the field. I asked: “So are you working on an iPad app?” Answer: “We’ve looked at our logs, and we’re seeing increasing traffic from the Kindle, but not much yet from the iPad, so we’ll wait awhile.”

I felt a rant coming up, but suppressed it then and will channel it now: If not now, then when?

We can look at each of the major revolutions in digital news and commerce, and see how news companies responded.

Search. Late.

Paid search. Way too late.

Video. Late.

Social. Too late.

Mobile. Largely too late.

News companies have used old yardsticks to measure new technologies, and the results have been, predictably and disastrously, too little, too late.

Now with the iPad, the advent of tablets generally, and the invention of the app metaphor as a way of navigating the digital life, news companies have another chance. The newsonomics of tablet ad revenue are uncertain — will iAds simply flood the ad market with more low-cost ads, as developers happy to get any ad revenue price their ads low? — but the tablet offers the biggest do-over potential for engaging readers anew and re-engaging advertisers, at rates somewhere between the laughably low of the web and the near-impossible-to-sustain-long-term highs of print.

The digital division head told me that the logs told him that there was insufficient customer demand to justify investment in an iPad app. This, I think, is like managing by rearview mirror.

The whole metaphor of the iPad is the app; ask anyone who uses it, and they’ll tell you they are surprised how little they use the browser and use search. So if you are counting browser views of your website coming through the iPad browser, you have no idea how a reader might use your product if it were built to take full advantage of the tablet’s abilities. In addition, consider that the sale of iAds require an app — not a browser-available site.

If this sentiment were uncommon, fine, but I fear it’s too commonly held. Wait and see. Wait — until it’s too late. That’s what I generally see happening among regional and local newspaper companies. They talk about early adopters and the high cost of a state-of-the-art iPad app, and most are waiting.

The big guys — what I’ve called the Digital Dozen — aren’t waiting. The Wall Street Journal, The New York Times, Thomson Reuters, The Guardian, BBC, and AP are in the game — some with better apps than others — and all planning the next generation of products. We’re seeing impressive sales in the thousands for the WSJ paid app and can wonder about the applicability of Wired’s impressive sales of 73,000 (which are on a trajectory to beat print newsstand sales) to news and newspaper companies.

We’ve already seen a great separation in product development, audience engagement, and ad revenues between the nation’s and world’s biggest news companies — each with struggles of its own — and the other guys. Yet as they struggle, they’ve gotten most of the ad revenue smartphones have so far generated, as local news media has failed to get any revenue of scale. At this point, the iPad era looks like it the opening of an even greater divide among the largest media — and the rest.

[Ken will be on vacation the next few weeks, but back in July. —Josh]

April 01 2010

18:16

The Newsonomics of iPads and tablets, floor by floor

[Each week, our friend Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of the news business for the Lab.]

AppleMania meets Rummy’s oft-noted trilogy of known knowns, known unknowns and unknown unknowns this week. The iPad is finally here.

Predictably, opinion is widely split on the impact of the tablet on future of news publishing. We don’t know enough, in truth, to ground any certainties. We can, though, start pecking away at it. Here’s a start. One way to assess the new is to connect it to the old.

So let’s build on the traditional cost-and-revenue structures of newspaper operations. I recall the floor-by-floor layout of the Pioneer Press, in Saint Paul, in the ’90s, a time our staff still filled almost all the floor space.

Bottom floor: HR and Finance. 2nd floor: Circulation. 3rd: Production. 4th: Marketing. 5th floor, advertising. 6th and 7th, newsroom. 8th, Exec suite.

So in a tablet world, what’s the impact on the major cost and revenue divisions of the news enterprise, knowing that HR, finance, marketing and executive suites have already seen their own slimming-downs and won’t be much affected?

Let’s start with the newsroom and with “production.” The traditional newsroom provides the meat-and-potatoes of the tablet experience, the text-reading experience. Yes, the iPad should turn “e-readers” and “e-editions” into trivia game answers. Most publishers look at their first tablet products as lite versions of what’s to come, incorporating a few gee-whiz features to salute the innovation. In those first versions, content production doesn’t need to change much.

Soon, though, it will. News companies will need to hire up and skill up — designing, creating and presenting reader-pleasing content. That’s enough of a challenge for monthly and weekly magazines; for dailies, it’s truly a transformative process. Dozens of newsrooms have incorporated videographers, design-savvy producers, and social net masters into workflow, but even in those newsrooms, the resources aren’t sufficient to create the truly new product the tablet enables — a product worth consumers paying for. Then, there are the hundreds of newsrooms who have relatively few of the skills they need at all. Newsroom (and Production) Net: The tablet demands new investment, mainly in new hires, somewhat in new training. With papers still in cutting mode, where will the money come from?

Circulation: It’s an accident of timing that the tablet launch coincides with the Year of Experimenting (Perhaps Dangerously) with paid content. Journalism Online’s Press+ system will soon test niche play from prep sports to obits to metering schemes of several kinds. The New York Times is neck-deep in its begin-metering-in-early-2011 plan. News Corp is erecting walls, the latest around the Times of London, as it just announced a paywall there to go up in June. Yet the timing of the iPad launch means that tablet economics will inevitably color – and may drive – paid content plans.

The Apple model, in a sense, just sets a new cost-of-distribution. While web distribution has been free-plus, the cost of Apple distribution — if you charge for news products — is a predictable, and seemingly stable 30 percent. Just give me 30 percent off the top, says Steve Jobs. Ironically, that 30 percent isn’t far off from the costs of physical distribution for newspapers.

With many news publishers planning on charging for iPad apps (though free, lite apps-as-teasers will probably be near-universal), we see the model of tablet “circ” emerging. Publishers look at the Guardian example (charging about $3.75 one time for its iPhone app), and have two reactions:

— Wow! They got 100,000 people to pay in just a couple of months!

— One-time sales are peanuts. We’re going to charge ongoing subscription rates for our apps/news products. Right now, each edition of a magazine is a separate app, as the Apple store is architected.

So, almost overnight, we’ve got a new model of paid content and supplier/distributor business model. The content company gets 70 percent; the distributor (Apple, first at least and foremost at least for now), gets 30 percent. That’s the inverse of the detested, standard Amazon model, 70 cents to Amazon and 30 to the publisher.

What might be the impact of such a split? Well, let’s estimate that The New York Times serves about 75,000 customers with its Kindle product, a nice little niche. The price is $13.99 a month. That’s $168 a year. With the standard split (the Times may do better), that would be $50 a year to the Times and $118 to Amazon. That would be $3.75 million a year for the Times (and $8.85 million to Amazon).

If the split were 70/30, the numbers would be reversed, netting the publisher another $5 million a year. That’s not huge money, but we can see how it would scale over time, as is clearly the intent with Wall Street Journal’s new $17.99 iPad product.

Now, Apple-delivered apps will not be the only way to monetize content, but expect to see the approximate 70/30 split become a model, a good starting point.

Circulation Net: News and magazine publishers now see a second digital revenue line. It’s 70 percent of X (the retail price) multiplied by Y (volume of sales). As news companies reinvent not only products, but new business arrangements with the distributors of the day — from Google/Amazon/Yahoo to Comcast/AT&T/Verizon — expect to see the Apple model invoked as “fair.”

Advertising: Early returns have been blockbusters — big advertisers like Chase supporting the New York Times iPad launch and watchmaker Hublot subsidizing two months of the FT product, for instance — and that buoys hope. At launch, iPad advertising is like Triple A office space in the city; it’s the new shiny, slick must place to be.

As the shine wears off a bit, it’s likely to become a great test ground for a new merger of brand and performance advertising. Brands love the idea of owning their own tablet experience, directly embedding themselves into customer experience, given the multitouch capabilities, video, and social upfront natures of this new platform. Connect that to direct-response advertising (glossy magazine with built-in wifi), and you’ve got all kinds of opportunities for engaging customers and watching the resulting metrics, minute by minute. Branded premium pricing may mate with AdWords performance-based pricing; who knows what the offspring will look like?

The first advertisers are the big national ones, and they in turn will want to associate with products that best use the new medium — the better to attract the kind of customer they want: leading edge, willing to try something new.

Ad Net: Tablet-based advertising should add, unexpectedly, to top line revenues in the second half of 2010 and more strongly in 2011. Expect though, a big split here: those companies I call the Digital Dozen, the 12-15 companies with national and global publishing reach and resources, will be the ones to create the best out-of-the-box news and magazine products – and they’ll be rewarded with a small surge in ad revenue. Those unable to play at a significant level will in turn reap few rewards.

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