Among Australian media executives, like everywhere else, the talk of the town is the iPad. I was in Sydney this week, giving a talk at the Media 2010 conference. This gave rise to vibrant discussions of the ways in which the Apple device could transform our industry.
Among the group of speakers, the most enthusiastic one about the opportunity was Marc Frons, the chief technology officer of New York Times Digital. (Marc oversees a huge team of 150 tech people in New York). Three weeks before Steve Jobs’ January 27th iPad keynote, Marc dispatched a team of developers to Cupertino to crash code an iPad application. According to Marc, the quality of the interface, the speed of the iPad, its software will make it a game changer for the media industry. From a commercial perspective, The New York Times still hasn’t decided how to deal with its upcoming iPad bizmodel: charging or not, and how much. The context is the Times’ recent announcement of a paywall based on a metered system: a few pages a month for free; then you pay. See our recent story The Numbers behind the Paywall).
For all publishers, many obstacles remain. The first one is dealing with Apple. Media executives I talked to in Sydney are unanimous: Steve Jobs’ company is difficult to work with. It is utterly secretive, willing to give only minimal information to content providers. “When we met with the Apple people here, said an executive of Fairfax Digital, they didn’t bring an iPad with them, they were telling things like “it has a ten hours battery life“… C’mon guys…” Fairfax Digital operates 284 websites in Australia, including the two big dailies’s sites – The Sydney Morning Herald and The Age – viewed by 24m uniques visitors each month, which is not bad in a 21m people country.
Apple needs the publishing industry, it should treat it better. When it launched the iPhone in January 2007, the device was a revolutionary product just in itself, one that could wait for more than a year to open its platform to third party applicatios. This isn’t true of the iPad. Unlike the iPhone, the iPad will leave or die by the content it will deliver. Especially for a device priced between $500 and $800. As for today, everyone is excited by the platform’s technological promise. But being able to offer a reader experience such as the Bonnier Mag+ concept or the recently released Wired demo is one thing. Finding the right economic model is another.
Publishers are expecting some kind of iNews Store or iMedia Store built on the iTunes’ framework: a friction-free payment system allowing flat-fee transactions (I buy an app once for all, maybe paying for major upgrades), but also pay-as-you-read (I’m navigating in the app and I click and pay for the high value contents I want). In the process, Apple takes a 30% fee for handling all the back office stuff (registration, application delivery, payment, etc.) Some publishers find such toll a bit high. Well, this has to be considered in the context of: a) an industry that has never been able to design a common transaction system for cross-branded contents in any country, and b) an industry that allocates more than 50% of its costs to industrial tasks (printing, shipping and delivering a dead-tree product). All of the preceding having nothing to do with the core product nor with any competitive advantage (being better printed or distributed makes little sense nowadays). Considered as such, 30% isn’t that expensive.
But from a publisher’s point of view, there are two other key elements to factor in. One is the device’s price, the other is the marketing possibilities.
As for the price, publishers see it as high. But this is not a matter of concern. First, over time, the price will drop, it always does. See what happened with the iPhone, it started at $599. According to iSuppli, a research firm that specializes in hardware cost analysis, the mid-range 3G version of the iPad contains $276 of electronic components and costs $11 to assemble (iSuppli is by the way showing remarkable tele-kinetic abilities since it didn’t made an actual autopsy of the iPad…) On a $730 device, that leaves a comfortable $442 gross margin per unit. The $499 entry-level version isn’t a loss-leader either. Apple has plenty of room to cut the the iPad’s price when needed.
Another question for publishers: subsidizing the iPad, just like the cell phone industry does with its handsets. Problem is: unlike the telecommunication industry which is good at organizing cartels, the media business is bad at cooperating. Hence there little chance a group of publishers would cooperate around a subscription bundle aimed at lowering the “price” of the device. Try mentioning such idea in Australia where the resentment against Rupert Murdoch borders hysteria; you get the same reaction as suggesting cooperation between the two Koreas. To a lesser extent, the same applies to many other countries. For example, the New York Times and The Guardian, with potentially much to share, are unable to find common ground.
From a big media group perspective, that’s a different story, though. Hachette, Condé Nast, Hearst, might consider bundling a subscription to their key titles to lower the price of the iPad to, say, a netbook level. Although complicated to implement, it deserves consideration.
But the key issue is marketing data. Apple generated a great deal of frustration for iPhone application makers by refusing to handle any data other than basic sales figures. That won’t work for the media industry. Publishers are used to pore over tons of numbers from their subscribers databases; they now data-mine internet traffic numbers. When selling iPad applications, they’ll need to know who gets them, in which markets, what parts of the content readers actually look at, for how long, all of the above broken-up demographics, location, time of the day/week, etc. If publishers want to switch to a test-learn-adapt mode, Apple ought to handle such data. By cutting off access to marketing information regarding its Kindle’s content sales Amazon shot itself in the foot. Apple must avoid this. It should soften its paranoid stance, and help the publishing industry embrace this potentially huge market. It’s in everyone’s interest.