The Netflix of Magazines and How Usage Will Really Work
April 5, 2012
I read “Finally, a Reason to Read Magazines on a Tablet.” The idea seems like a quite fresh one. A group of publishers have teamed up to pool high-value content. Users can buy the content. The idea is that aggregation of full text and a flat fee of $10 or $15 per month will generate revenue. I have not been privy to the discussions, but I have a hunch that the notion of “big money” and possibly the idea of “saving the magazine business” may have crossed the minds of the folks who came up with this 21st century idea. You can read the AllThingsD article and get the nitty gritty.
I want to focus on a fact I learned in my years of working with content in online form. Some of these ideas will strike most of the people under the age of 40 as silly, but the comments below are based on real life experience with commercial information products delivered in digital form via electronic media. I invite comments, but I want to capture the basics before I zoom past this “revolutionary” idea. I have pulled some ideas from my confidential report, “The Physics of Information,” prepared for a government agency a number of years ago. (Some related content is available when you search Beyond Search for “mysteries of online”; for example, Mysteries of Online 3: Free versus Fee Information.”)
The collision of reality and for-fee, high value information services spawns a large number of unanticipated costs. Revenue is usually inadequate to cover spikes, pay overhead, invest in additional development, and expand the user base. Unlike print magazines, digital content is slippery and tough to make pay in the way a successful magazine did in 1975.
First, in any aggregation of electronic content, there will be a variant of the 80-20 rule. In the digital world, four to seven percent of the available content attracts attention. If you have a back file of 100,000 stories and a flow of five new stories a day, the most recent content attracts the majority of the clicks. The “long tail” is an interesting concept, but in the world of paying for digital information, the fresh content and the most recent content has value. Older content for the majority of those seeking information is “nice to have” and will be rarely if ever clicked upon for a fee. As a result, when I am asked, “Do we build a back file of our high value content?”, my answer is, “No.” The money comes from the now content. Back file content unless easily automated or very cheap to acquire is not worth the hassle. Better to put the resources into the now content.
Second, in that flow of now content, a weird behavior emerged from the business, consumer, and technical usage data I have examined since 1978 or so. In a collection of 1,000 now articles, the distribution is not one of those nice bell curves in Statistics 101. Those data sort of work for height. For other data sets, the bell curve is not too useful. What happens is that a small number of “articles” account for the bulk of the traffic. The distribution is not as severe as the now data usage, but 25 to 40 percent of the articles will account for 90 percent of the clicks, eyeballs, purchases, whatever.
Third, in a pooled content service, the contributors, in this case big media outfits, assume each individual publishers’ content has extremely high value. Well, this is wrong, so payments have to be worked out to preserve egos and keep individual publishers from concluding, “I can do this myself and make more money.” The idea is that revenues are pooled, administrative costs are covered, and what’s left is distributed on some basis. One way is to calculate how much of the now content comes from which publisher and then use that to chop up the money. Clever MBAs can have a lot of fun coming up with ways to share the money that flows in.
Fourth, the costs of pooling content, keeping the service in step with technology, and administration rise more rapidly than folks typically expect. As a result, the hoped for “break even” point moves into the future as new costs and baseline costs cascade. No matter how hard one works to control costs for an aggregated service, it is difficult to get from here to there. The “here” is the sunk and ongoing costs which are known and the “there” is sufficient revenue flow to pay back the sunk costs, cover on going costs, and handle with the “spike” costs which are the bane of online, for fee services.
I hope the new service works. I like magazines. I worked for Bill Ziff and before that CRM Publications which published Psychology Today and Intellectual Digest. Ah, so long ago. The notion of making money on high-value content is one that makes a great deal of sense sitting in an editorial office in New York or London. The problem is that the consumerization of technology appears to create a giant new market. Well, sort of. In my experience, the emergence of pervasive connectivity creates tremendous demand on the individuals who are expected to use for fee services. There are fewer people willing to pay for high value content even among the iPad and smartphone segment. As a result, each iPad and smartphone user becomes more resistant to paying for certain services and content. The idea of “good enough” is the spike through the heart of information services chasing a highly desirable segment of iPad and mobile device users.
Reality is painful. Will reality collide with the Netflix of magazines? Yep, but I don’t know how quickly or how hard.
Stephen E Arnold, April 5, 2012
Sponsored by Pandia.com
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