If your digital magazine business isn’t the better magazine business, what’s the point?

  • 10 September 2013

How can you pull off a successful transition from print to digital? A good first step is to make sure that you are moving towards a business that’s actually better.

Unfortunately, when I’ve asked magazine publishers about their efforts to steer print readers towards their digital editions, the single most common answer is this:

Oh, we’re not doing anything to get our readership to go digital. In fact, we’re doing the opposite. Print makes us more money, so that’s where we want our readers.

This is the kind of answer you’ll get when a publisher’s digital per-reader economics are worse than in print. If you are in charge of a digital product and find yourself in this situation, fixing it is your job number one: trying to build a successful digital business when all your internal incentives point the other way is impossible.

Per reader, your digital edition needs to be a better business than the print magazine. The economics of this are an interplay of three things: production costs of digital, subscription pricing, and advertising revenue. Let’s look at each to see what a profitable digital edition looks like.

Production costs

When talking about print and digital editions, I am assuming a common source of content for both. The difference in production costs, then, is the difference between the cost of printing and shipping the print magazine and the cost of the chosen digital distribution mechanism.

The baseline to consider is the digital replica edition: just like print, but at one tenth of the price. Our publishing platform product Maggio, for example, is just 30¢ per downloaded issue with zero up-front investment. There are even cheaper alternatives.

If you’re open to spending more, there are two possible avenues of investment. You can invest in the content, on a per issue basis, by designing tablet-specific layouts, adding interactive features, embedding videos or building in other digital content. Alternatively, you can invest in the publishing platform itself, typically by building a custom app for your magazine.

When investing in “enriched” content, remember that an issue of your magazine is a perishable good. Any investment you make in a specific issue will only generate returns in proportion to the number of readers that one issue manages to attract.

Investing in a platform, such as a custom app, would produce returns for longer—but not forever. Expect to replace a bad app after a year and a great app after 36 months. One consequence of this is that if you need to start accounting for the deprecation of this capital expenditure immediately, the economics of the custom app path become very challenging.

The publishers that choose this route are often in the lucky position of being able to have the CAPEX part funded from an R&D black hole very loosely earmarked for “digital transformation”.

My recommendation: spend what you can, but make it a point to spend less per reader than it takes to put out the print edition. If, for example, you are saving $2 on each digitally distributed issue, even very modest digital circulation numbers will save you enough to cover the cost of a professionally designed, tablet-specific layout.

Subscription pricing

A big reason for my previous recommendation—spend less on digital distribution than you do on print distribution—is that your readers will expect you to. What’s more, they expect you to pass your savings on to them.

If a subscription to your digital edition costs the same as a print subscription, your readers will complain. If it costs more, they will simply laugh at you.

In digital, you are also competing against other digital entertainment that’s often very cheap or free. This is not to say that offering paid content is a doomed endeavor; far from it. But it does mean that the price point that maximizes revenue is lower than it is in print.

A side note: Many people blame Apple’s 30% cut on in-app payments for the lousy economics of their digital editions. Before you jump to this conclusion, you need to carefully review your own customer acquisition and servicing costs, including the transactional costs of the billing methods you support.

If Apple’s (or Google’s, or Microsoft’s) solution ends up being significantly more expensive than your own costs—and that’s certainly not a given—you should account for that in the pricing you offer through these channels. Nothing prevents you from offering better deals to customers you acquire directly.

My rule-of-thumb recommendation on pricing is simple: split your production cost savings with your readers. If you save $20 on printing and shipping, sell subscriptions for $10 less.

Advertising revenue

Full page rich media ads are more effective than their print counterparts. Per reader, they are worth more money.

Unfortunately, it does not follow that you can actually charge more per reader than you are currently charging in print. Because print advertising is so hard to measure, it’s possible that you have gotten away with overcharging for it.

Another challenge is the question of critical mass: when starting from scratch with your digital edition, it’s hard to make ad sales work in CPM terms. The transactional costs can simply be too high both for you and for the advertiser. Emerging rich media advertising standards like MRAID are changing this, but progress has been slow.

Luckily there is a simple and effective way to guarantee that your advertising revenue is at least on par with the print product: just include the print ads you’ve sold in the digital edition.

Like the whole idea of replica editions, this approach simply feels wrong to many people. And indeed, including print ads at no extra charge can make the sales of digital-only advertising more challenging. But the benefits clearly outweigh that single downside:

  • Instead of starting at zero advertising revenue per reader, you start with the print revenue as your baseline. And this is the starting point, not the end result.

  • If you are a glossy magazine, your readers are likely to consider advertising a part of the product. You don’t need to start with that part missing.

  • Finally, in many markets, if your digital edition includes the print advertising you’ve sold, you can count the digital edition in with your overall circulation.

To recap, I’m advocating keeping costs down, sharing the cost savings with your readers, and basing your digital media product on your existing print advertising business. Yes, this approach is boring. No, it will not disrupt the market or win you awards for the most innovative tablet execution. But it will make you money.

Now, there is a thing to be said for the opposite route: the one where you come up with something entirely new and as a consequence need to start with huge costs and zero revenues.

Here’s the thing. Yes, you can try to foster and nurture disruptive innovation. You can create the kind of skunk works environment where it is known to emerge and pave the way.

What you can’t do, though, is to plan and execute a transition from your current business to a new, disruptive one. Innovation just doesn’t work that way.

Whether you’ll work on disruptive innovations in the digital magazine space or not, one thing’s for sure: your bread and butter magazine product should be helping, not hurting, your business.