iPad Changes Equation of Newspaper-Subsidized E-Readers

Stack up the price of Apple’s iPad against what it costs to put a newspaper in your driveway for a couple of years and you’ll find an e-reader business model that just might work.

Let’s look at the numbers: Every week, a typical American newspaper spends $1.50 per subscriber for production and another buck on delivery, according to estimates assembled by John Murray of the Newspaper Association of America.

Add to that another dollar or so to cover telemarketing and other costs of acquiring the subscription in the first place. Because of the churn of newspaper subscriptions, it takes two subscription acquisitions to sustain the equivalent of a single annual subscription, bringing the acquisition costs up to $2 per subscriber per week.

On the revenue side, Murray, the NAA’s vice president of audience development, puts the average seven-day subscription at $3.85 a week.

All that adds up to:

  • Circulation revenue per subscriber over two years: $400
  • Expense of producing and delivering the paper, plus acquisition costs: more than $450.

It doesn’t take advanced math to show what a money-losing proposition this is without advertising. It’s the ad revenue that flips the scenario from loss to profit for a majority of this country’s nearly 1,400 daily papers.

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Advertising probably can’t carry that burden forever, though, and circulation numbers are declining. That’s true not just because users are opting for online news over print, but because publishers are choosing to spend less money to get people to subscribe

That means that, in addition to maintaining or growing revenue, newspapers have to find ways to cut legacy costs. They can’t do that simply by shifting from print to digital because 90 percent of their revenue is associated with the print edition. So how do they move off the high-cost analog platform without losing too much of the income it produces?

Here’s one step the Daily Bugle might take in that direction: In exchange for a two-year subscription, the paper offers customers willing to drop the print edition a reduced subscription fee for the Bugle’s iPad app plus a $250 coupon for a new iPad. 

Roger Fidler, the granddaddy of news tablets who heads an association of leading papers looking at such issues, says the coupon idea is gaining favor among his members.

By not printing and delivering a print edition to those subscribers, the Bugle will save a good chunk of the $250 it would have spent on production and transportation costs over two years. (Many of those costs are fixed, so the company won’t save the entire amount.) 

And by securing a two-year subscription promise (on the model of a cell phone contract, with an early termination penalty), the Bugle saves some of that $200 in acquisition costs — let’s say a bit more than half.

Between the two, the Daily Bugle could save substantially more than the $250 it would spend for that iPad coupon. Plus, it would exercise the sort of strategic cost-cutting that makes sense for an industry in disruptive transition. Rather than cutting news capacity, which undermines the core product, the paper would trim expenses as it shifted readers from an old platform to a new one.

Will the iPad be newspapers’ salvation? No, but it could play a substantial role in the migration of their users from a cost-heavy past to a more efficient future.

Here’s the rub: For a deal like this to entice enough users to matter, a paper would have to develop a stunning user experience, for advertising as well as news, on iPads and other e-readers. Even with the lure of a $250 discount on the $499 base model iPad, users would have no reason to pay for news via an iPad app if they could get the same experience by browsing the Web on their iPad or computer.

The New York Times is experimenting with a variation of the coupon approach with its Times Reader: Pay $179.40 for an annual subscription to the Reader, and you get a $100 coupon for a Samsung netbook. Along with The Washington Post and The Boston Globe, the Times offered a reduced price on the Amazon Kindle DX to customers who live in areas where the Times doesn’t deliver the paper and who sign up for long-term subscriptions. 

John Murray, vice president of audience development for the Newspaper Association of America, says something along the lines of the coupon plan has been the subject “mostly of hallway conversations” among newspaper executives. The prospects for such deals are brighter with Apple than with Amazon (for Kindle subscriptions), he said, partly because “Amazon is such a pain in a butt to work with. They set the prices and take such a big cut.”

Owen Youngman, the Knight professor in Digital Media Strategy at Medill who spent 37 years as a Tribune Co. editor and executive, said the prospects for the coupon idea would be much improved if a publisher offered cool apps not just for a single paper or publication but, say, for 10 of them.

Fidler, who created his first mock-up of a tablet in the summer of 1981 while working on Knight-Ridder’s ill-fated Viewtron project, said the coupon approach is among the options under discussion by the Digital Publishing Alliance he’s created at the Reynolds Journalism Institute at the University of Missouri.

He said the alliance, which includes The New York Times, The Washington Post and The Wall Street Journal among 31 member organizations, also considered, but discarded, the idea of purchasing various e-readers and tablets for long-term subscribers.

“They all decided they didn’t want to be in the hardware business … or be responsible for the e-reader,” he told me in a telephone conversation Wednesday. “But the coupon is not a bad idea. If you subscribe to our e-edition, you get some discount toward purchasing the e-reader.”

Fidler said the alliance is especially concerned with the nature of the news experience on tablets.

He quoted New York Times executives as describing the experience of users on their Web site and iPhone apps as “snacking,” compared with what they regard as their “dining” in print and, hopefully, on e-readers.

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