Why subsidizing tablets for newspaper subscribers, in Philly & elsewhere, makes sense

Philadelphia Media Network’s plan to subsidize tablet computers for thousands of subscribers makes a lot of sense, and they deserve credit for leading the industry in a new approach. But the impact it will have for the owner of the Inquirer and the Daily News is still an open question.

Philadelphia Media CEO Greg Osberg announced Monday the plan to subsidize the cost of Android-powered tablet computers for people willing to also buy one- or two-year newspaper subscriptions at a discount. The tablet would come pre-loaded with apps to read replicas of the print paper, as well as an additional Inquirer app and a shortcut to Philly.com.

Why this is a good tactic

People want tablets. They’re fun, useful and just plain desirable. They already have reached 8 to 12 percent of U.S. adults and that number will keep growing in coming years.

Philadelphia Media is sure to earn some basic good will and loyalty from the people who receive new gadgets to play with. It’s the age-adjusted equivalent of luring college students to do anything for free pizza. For adults, you just have to step it up a little.

Of course, giving away free stuff always creates interest. But the real question for a news organization is: Does the giveaway create enough value to offset the substantial costs? Fortunately, newspapers have some history in this area to guide them.

Even in print, the cost of acquiring and serving subscribers is a loss-leader to enable greater advertising revenue. Earlier Poynter posts calculated the average print newspaper subscriber produces direct revenue of $400 over two years, while it costs the publisher $450 to acquire the subscriber then produce and deliver the paper over that time.

Advertising traditionally makes up the difference, and then some. So Philadelphia Media will have to earn enough mobile ad revenue from these subscribers to cover whatever costs their subscription payments don’t. (Since this is a relatively small pilot project, however, it may be less important to make money than to prove the concept could work on a larger scale. Osberg told Poynter’s Rick Edmonds he expects profitability by 2012.)

Giving subscribers subsidized tablets also is a good marketing tactic. Many readers are going to make the print-to-tablet transition anyway in the next few years. It would be a losing battle to hope they’ll continue reading print newspapers in large numbers once attractive, affordable tablets are available. Recent research showed that one-third of people who have purchased tablets read the printed newspaper less often. So subsidizing a reader’s first tablet, with your news apps baked in, lets you shape that transition in a way that keeps your media brand in their daily habits.

Philadelphia Media will have choices to make about who gets into the tablet program. Osberg said it wouldn’t be the ultra-savvy first adopters who already have iPads, but would still be mostly “tech-savvy young professionals.” The company has an important opportunity to use these tablets to help bridge the digital divide, as Will Bunch suggests.

I hope the Philadelphia Media staff will track usage and engagement patterns among the few thousand subscribers who receive the subsidized tablets. It would be interesting to know if they do consistently read the Philly.com content through the apps, and if they engage with it any more or differently than average mobile users.

Potential pitfalls

Philadelphia Media is distributing Android tablets, not iPads. And in the current consumer market, iPads stand apart from everything else as the most popular device. Will an Android tablet (the exact type is not yet specified) have the same appeal?

Certainly, Android is coming along as a tablet platform, but it’s early. There are far fewer apps and the operating system is less-polished than Apple’s iOS. Apple set the pace in the tablet market, and it will take another year or two for Android models to be truly competitive among consumers.

The tactic also lacks any multiplier or network effects. One person gets one tablet, and if you’re lucky you’ve preserved one subscriber. It’s fine so far as it goes, but its reach is limited. The Inquirer and Daily News combined claim over 380,000 daily print subscribers. Are they going to eventually subsidize 380,000 tablets?

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