Glossy, thick, over-sized magazines are diminishing in circulation and revenue, a relic of simpler time...you can't charge for content anymore!
Naysayers will focus on the demise of this, but the new interactive medium is providing an even larger opportunity for content providers and their advertiser clients: Apps.
Already, many magazines and newspapers have picked up on this trend, I'm certainly not the inventor of this notion. A nice list of case studies can be found here.
Runner's World app in particular wows me. Running articles, of course. Instructional videos. Running trails finder. Shoe fit/match software with location-aware referrals to nearby retailers. Imagine if you could combine this with comparable Nike+iPod functionality. Killer App.
RW now becomes a one-stop shop for people interested in running. The RW App actually solves more problems for its readers than its magazine format ever did before. And that is the future for content providers: solving problems for its audience, beyond just informing them.
The slippery slope for content providers: encouraging trial without training customers to expect this for free. RW's app is $0.00. This is okay IF it is turning around and offering premium branding opportunities to clients (the app is sponsored by Nike) and somehow monetizing referral sales.
Content providers have to think more broadly about the vertical they're in and build value-added services for which people are willing to pay. For example:
Album as the App: the market proves it's hard to charge for digital music. But is it more reasonable to include a bundle of songs, plus live songs that are updated based on recent performances as a band tours, Trent Reznor/NIN style location-based fan finder, exclusive live video, remixes/acoustic versions of songs, discount purchases on merch, concert tixes. Now that is something worth paying for - no need to create formats that require customer education - people already understand apps!
Newspaper as the App: Newspapers not only can offer content, but can turn the tables and become the aggregator. Aggregate reviews from Yelp and Rotten Tomatoes along side your own. Include location-based movie listings (that theatres are no longer paying to include in your print version). Aggregate Craigslist classifieds alongside your own. Local weather and sports. Location based real-time events calendars. Severe weather and safety alerting for individuals and their families. These are things that multiple players are providing in piecemeal...but you can be at the center of it all, reclaim your position as the community hub, aggregate it and provide it as a mobile app and perhaps even charge for it (or at least employ freemium tactics...updates and alerts in real-time for paid subscribers, delayed for others; unlimited access to all reviews for paid subscribers, limit to only 5 reviews for others, etc.)
Magazine as the App: Content (text, audio and video). Commerce finders/comparison engines if relevant (shoes are obviously key for runners, but you risk being spammy if you are a more general-purpose publication. NYTimes for example may only want to focus on its Wine Club). Instructional video/audio/text as it pertains to your content vertical...classical music publications may actually offer instruction in playing instruments, for instance. Self-improvement tools (make-up, diet tracking), self-organizing tools (event calendars, financial budgeting, family calendars), time-saver tools (recipe makers/shopping lists), maintenance alerts (for bikes, cars, personal health check-ups)...
the list is endless and I'm not smart enough to list them. But you can quickly inventory a huge list of functionality if you think about your content vertical more broadly and think about the problems that consumers have who are the audience in that vertical.
And don't even get me started on games.....if you want to make your content truly interactive and conversational and with a feedback loop...well, that's a topic for another day.
Showing posts with label newspapers. Show all posts
Showing posts with label newspapers. Show all posts
26 August 2009
08 July 2009
Musings of a mid-tier MBA
So I went to a mid-tier business school, and might not be informed enough to offer some opinions on some things I've been reading about recently. But that won't stop me from doing exactly that below and if these thoughts are off, feel free to comment, make fun of me, or never read this blog again.
By the way, if you're wondering why I haven't posted in soooo long (I'm sure you are not), it is because I am lazy. Facebook and Twitter allow me to muse to the masses of people (none) that hang on my every word, and I can do so without having to offer anything remotely resembling a cogent argument since these are usually limited to 140 character bursts.
So enjoy some of these musings of based on things that I have been reading recently instead of doing work:
Marginal Costs of Web Content
There are a lot of libertarian-types who believe that since the marginal cost of producing digital content is essentially zero (that is, once a piece of digital content such as a song, movie or news article is created, it is virtually $0.00 to produce another copy of it), that such content should be free. Free is the new business model! But this does not reflect total costs, which this VC points out……charging for content shouldn’t be considered ludicrous only because of this economic phenomenon.
Take Comcast for example. They have already invested millions (billions?) to lay all of their fiber optic wire….its marginal cost to add another subscriber is virtually zero (they do incur costs for the installation – but they pass on that cost to you). But yet they still find a way to gouge around $150/month from subscribers for their “Triple Play” offering. People need to get over this whole “marginal cost = 0 then price should = 0” faulty logic chain.
The real impediments to monetization of digital content are bundling, scarcity and piracy. The first two I'll address later. The third, piracy, is pretty much uncontrollable without direly affecting the buyer’s experience (through DRM or subscription services, such as Rhapsody). The ease of piracy means content producers (particularly music content) have to focus on other places to make money. In the same way that refrigerators made it impossible for the market to charge for ice except in only niche circumstances (yes, there once was a burgeoning ice manufacturing industry in this country), piracy enabled by digital technology and the internet have made it impossible for the market to charge for music except in niche circumstances/segments.
Fixed Cost Structure versus Variable Cost Structure
This insightful (please note sarcasm) analysis by a blogger appropriately titled “Reflections of a Newsosaur” shows basic misunderstanding of this insightful, investigating, probing journalist on the concept of fixed versus variable costs. Though the underlying report was originally mis-published (no this is not a word but I choose to use it anyway so suck it), this individual can’t believe (understand?) how the newspaper industry could have a 100% decline in revenue but still have a 12% operating margin – and that maybe the industry isn’t so bad off after all (these statistics were originally misreported – however, the blogger’s misunderstanding of these statistics is what I’m addressing).
Newspapers have a lot of fixed assets – printing presses, delivery trucks, etc. The variable costs to operate these are not trivial…but it’s not like launching a space shuttle. If a newspaper isn’t heavily leveraged and burdened with outrageous debt/interest payments (see Tribune Company), the variable costs to operate a newspaper could still be modest enough to possibly maintain an operating margin “double that of Wal-Mart’s” even in the face of declining advertising revenues (Note that this guy is so sharp that he is amazed that an entity is printing money if its margins are 2x that of a discount retailer which competes on price and therefore has razor-thin margins.) The on-going costs to operate a newspaper – basically staff salary – for some papers may still be offset by its ad revenue. There is actually a paper in NJ that refuses to do any digital distribution and only offers a print edition – and is still doing OK. This primarily fixed cost structure is also exactly why the old-school copper landline phone business is minting free cash flow for Qwest, Verizon, etc.
The point however isn’t that newspapers should avoid digital and do only print. The point is that high fixed cost-based businesses, even if they have dying technology, should still continue to milk this until the business just dies. You realize that AOL’s dial-up service is still around? Yes, it is! It’s a high fixed cost business with low cost to operate. Mints money. UPDATED 12 AUGUST 2009: NY Times may even consider keeping the Boston Globe due to its (relatively) low cost to operated and cash flow it generates, even though it continues to decline.
As I’ll continue in the next post, the fixed costs/variable costs issue puts internet online web streamers/radio stations such as Pandora, Last.fm, Imeem, Spotify, etc., in quite a bind. As web pure-plays, they don’t have to invest in the broadcast infrastructure that terrestrial radio stations do. However, their costs are almost exclusively variable. The more listeners they acquire, the more bandwidth and royalty costs they incur. Contrast this against terrestrial radio, where infinite listeners can tap into the over-the-air broadcast without any marginal costs to the station.
By the way, if you're wondering why I haven't posted in soooo long (I'm sure you are not), it is because I am lazy. Facebook and Twitter allow me to muse to the masses of people (none) that hang on my every word, and I can do so without having to offer anything remotely resembling a cogent argument since these are usually limited to 140 character bursts.
So enjoy some of these musings of based on things that I have been reading recently instead of doing work:
Marginal Costs of Web Content
There are a lot of libertarian-types who believe that since the marginal cost of producing digital content is essentially zero (that is, once a piece of digital content such as a song, movie or news article is created, it is virtually $0.00 to produce another copy of it), that such content should be free. Free is the new business model! But this does not reflect total costs, which this VC points out……charging for content shouldn’t be considered ludicrous only because of this economic phenomenon.
Take Comcast for example. They have already invested millions (billions?) to lay all of their fiber optic wire….its marginal cost to add another subscriber is virtually zero (they do incur costs for the installation – but they pass on that cost to you). But yet they still find a way to gouge around $150/month from subscribers for their “Triple Play” offering. People need to get over this whole “marginal cost = 0 then price should = 0” faulty logic chain.
The real impediments to monetization of digital content are bundling, scarcity and piracy. The first two I'll address later. The third, piracy, is pretty much uncontrollable without direly affecting the buyer’s experience (through DRM or subscription services, such as Rhapsody). The ease of piracy means content producers (particularly music content) have to focus on other places to make money. In the same way that refrigerators made it impossible for the market to charge for ice except in only niche circumstances (yes, there once was a burgeoning ice manufacturing industry in this country), piracy enabled by digital technology and the internet have made it impossible for the market to charge for music except in niche circumstances/segments.
Fixed Cost Structure versus Variable Cost Structure
This insightful (please note sarcasm) analysis by a blogger appropriately titled “Reflections of a Newsosaur” shows basic misunderstanding of this insightful, investigating, probing journalist on the concept of fixed versus variable costs. Though the underlying report was originally mis-published (no this is not a word but I choose to use it anyway so suck it), this individual can’t believe (understand?) how the newspaper industry could have a 100% decline in revenue but still have a 12% operating margin – and that maybe the industry isn’t so bad off after all (these statistics were originally misreported – however, the blogger’s misunderstanding of these statistics is what I’m addressing).
Newspapers have a lot of fixed assets – printing presses, delivery trucks, etc. The variable costs to operate these are not trivial…but it’s not like launching a space shuttle. If a newspaper isn’t heavily leveraged and burdened with outrageous debt/interest payments (see Tribune Company), the variable costs to operate a newspaper could still be modest enough to possibly maintain an operating margin “double that of Wal-Mart’s” even in the face of declining advertising revenues (Note that this guy is so sharp that he is amazed that an entity is printing money if its margins are 2x that of a discount retailer which competes on price and therefore has razor-thin margins.) The on-going costs to operate a newspaper – basically staff salary – for some papers may still be offset by its ad revenue. There is actually a paper in NJ that refuses to do any digital distribution and only offers a print edition – and is still doing OK. This primarily fixed cost structure is also exactly why the old-school copper landline phone business is minting free cash flow for Qwest, Verizon, etc.
The point however isn’t that newspapers should avoid digital and do only print. The point is that high fixed cost-based businesses, even if they have dying technology, should still continue to milk this until the business just dies. You realize that AOL’s dial-up service is still around? Yes, it is! It’s a high fixed cost business with low cost to operate. Mints money. UPDATED 12 AUGUST 2009: NY Times may even consider keeping the Boston Globe due to its (relatively) low cost to operated and cash flow it generates, even though it continues to decline.
As I’ll continue in the next post, the fixed costs/variable costs issue puts internet online web streamers/radio stations such as Pandora, Last.fm, Imeem, Spotify, etc., in quite a bind. As web pure-plays, they don’t have to invest in the broadcast infrastructure that terrestrial radio stations do. However, their costs are almost exclusively variable. The more listeners they acquire, the more bandwidth and royalty costs they incur. Contrast this against terrestrial radio, where infinite listeners can tap into the over-the-air broadcast without any marginal costs to the station.
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