Opportunities, Questions Abound as Digital Magazines Become a Reality
Publishers have been speculating about the potential of electronically delivered magazines practically since the day the first magazine page was digitized. But it’s taken years for technology and the Internet user base to reach a point where digital magazines seemed a viable option. Now, systems that employ the Internet to send exact digital replicas of magazines–including all ads and editorial–are being marketed. And pioneering publishers are indeed taking the digital leap.
As with any new technology, there are challenges–starting with the need to gauge a given market’s potential acceptance levels and sort out the logistics and business-model implications of simultaneously marketing print and electronic versions. And content copyright and content conversion issues are causing some interested publishers to hold back for the present.
Still, a variety of major publishers have already participated in tests, and a growing number are signing up with electronic distributors to begin offering digital versions to readers.
The draw of being able to instantaneously deliver magazines anywhere in the world, at a fraction of the cost of standard postal delivery and without paper, is powerful. In addition, digital magazines can readily incorporate rich media and Web hyperlinks, archiving and search capabilities–applications that may attract advertisers, as well as readers.
Publishers who’ve committed to deploying the technology say they feel that image quality has finally reached a consumer-ready level, and that other user-friendliness factors have come a long way. “What we like about electronic delivery is that we can offer something with the same look and feel of the printed version,” says Penelope Muse Abernathy, group publisher, Harvard Business School Publishing, which began offering digital single copies of Harvard Business Review (HBR) in late June, and hopes to offer digital subscriptions by September. The publisher signed in mid-May with one of three companies offering the technology, NewsStand, Inc.
Even publishers who aren’t ready to try digital versions say that they’re impressed by the technology, and believe it will have an important impact on publishing models going forward. “After many years of hearing talk about electronic delivery, what impressed me [in demonstrations] is that this is the first time I’ve seen delivery in an easy and readable format,” says Paul Masse, VP, consumer marketing for The Sporting News. “Reproduction of graphics and photography is crisp and on par with what readers would see in the printed magazine. And the embedded audio and video links represent a potential [marketing] advantage.”
At Hearst’s Popular Mechanics, publisher Jay McGill, who’s assessed all three systems, says that the user platforms vary somewhat, but all provide “good, high-resolution files.” Along with Grain Communications’ AdAge Global edition and CMP Media, PM announced in early June that it had signed with Qiosk.com, Inc. division qMags.com to launch a digital version. McGill says he’s not expecting “huge response” immediately to PM’s digital edition, but believes that the option has real potential for his reader base. “Our readers are into innovation, and this technology allows for lots of cool interaction with the magazine,” aside from its other advantages, he says.
McGill thinks that offering both digital and print options will become common, particularly as hardware continues to advance. “It’s coming–and acceptance will accelerate rapidly once we have truly portable, wireless devices that are about the size of portfolios and allow for really easy viewing of whole magazine spreads at a glance,” he predicts. Reading a whole spread, or a whole page, can be difficult on standard-sized screens, although users can click to magnify any portion of a page to virtually any size, either for reading or a close-up look at graphics.
While no one’s doubting that the technology will continue to evolve, heavy-hitter media and technology firms are investors, and a roster of executives are officers or advisors at qMags.com and Zinio, the third player in the field. (See sidebar, page 58, for background on the three companies.)
qMags.com, which conducted extensive beta tests with several major publishers, reports that it’s currently in negotiations with 16 publishers in addition to those already signed. In addition to its HBR contract; NewsStand, Inc. has a five-year agreement with The New York Times, which is also a minority investor. At press time, NewsStand said it was about to announce more clients. Zinio, which hasn’t signed any magazine clients yet, is aiming for a live launch in first-quarter 2002.
FIRST ADOPTERS SEEK GLOBAL, TIMELY REACH
Most of the publishers who’ve contracted thus far or are seriously considering the digital option have significant international circulation components and/or time-sensitive content And, although the digital magazines are as easy to use as any Web application, most of these first users serve business or consumer markets with high penetrations of computer- and Net-savvy readers.
The immediate cost and timeliness advantages for international marketing aren’t hard to grasp. “Since international delivery costs are generally three times those for U.S. delivery, we’re likely to see the internationally-minded magazine segment grow first,” says qMags.com senior VP, consumer marketing and publisher services Patrick Kenny, formerly a circulation consultant and VP, global circulation for Reader’s Digest Association.
For titles like HBR, which yields a third of its circulation from outside the U.S. and serves a computer-reliant reader base that expects instant access to business information, the match seems natural. “Business people who do work on laptops can read and do research while travelling,” points out Abernathy. “They can download [the magazine] before they get on the plane and have it available when they want it.”
CMP Media owner United Business Media, an investor in qMags, clearly sees cost and cross-marketing benefits in marketing digital versions to the millions of computer professionals who read CMP’s stable of mostly controlied-circ tech titles.
Financial, business and general news magazines aren’t the only ones that see timeliness advantages. “People have a mania about their sport,” says Masse of The Sporting News. “They want instant gratification.” If desired, a digital version can be delivered within hours or even minutes of an issue’s closing, before the presses roll.
POTENTIAL CIRC BENEFITS
Obviously, digital versions have potentially major implications for all aspects of the publishing operation. The possible marketing applications and cost benefits in the circulation area alone are myriad, although it remains to be seen how quickly they can be realized.
Here’s a summary of some of the circ applications publishers are hoping to leverage through digital versions:
* Delivery that’s not only immediate, but much more reliable, particularly outside of the U.S. Publishers can reach areas of the world where distribution of printed magazines is difficult or cost-prohibitive.
* Ability to sell current and archived single issues, and use these to generate new subscribers. HBR will be marketing digital single copies worldwide to gain exposure to a wider audience of potential subscribers, as well as generate incremental single-copy revenue, according to consumer marketing director Jeff Flanders.
* Ability to sell current and archived single articles, searched and accessed through key words. HBR already realizes between 20 and 25 percent of its total revenue from print reprints, and plans to charge the same fee for an electronic reprint as for paper reprints ($4.95).
* Ability to control marketing and usage. Publishers can offer any number of trial issues, and can go back and communicate with purchasers of single issues and articles, if they so desire. They determine whether subscribers can pass along an issue and, if so, how many passalongs are allowed. They choose whether subscribers can receive the magazine on more than one computer, and how long an issue can be retained. They also determine whether subscribers can print out magazines on a page-by-page basis. (Research shows that very few potential users are likely to want to print out whole issues.)
* Ability to market interactive editorial, advertising and e-commerce functions. Readers can click directly into specific articles from cover lines and TOC’s, and can click on “continued” at the end of a page to go directly to the jump. With a click, they can zoom in on any part of an article, view embedded editorial or advertising videos, connect to a linked edit or advertiser site, or make an online purchase of an advertiser’s product or editorial offering.
* Ability to employ new types of circulation marketing vehicles. After looking at qMags, Rick Day, group circulation director, Hearst Magazines, said that he thinks its “virtual cover wrap” (an open page to the left of the front cover and another to the right of the back cover) is potentially as effective as a standard insert card. The vehicle can also be used to promote renewals, gift subs or other products.
Day also sees circ marketing potential in the monthly messages that some vendors will send to inform subscribers that their electronic issues have been delivered. But the promotion feature he finds most interesting is “instant editorial.” “We can use it as a premium or sampling method, or to send the first issue of a subscription,” he says. “We’ll test those things later this year: qMags will also let us create smaller, sampler issues.”
PRICING AND COST ISSUES
The current circulation climate, along with the downturn in advertising, are clearly spurring publishers’ willingness to try the new technology. With both sub and newsstand profitability taking a beating, it’s hardly lost on publishers that even relatively small portions of digitally delivered circ could have a positive impact on P&L, if they can be marketed at the right price.
Most early-adopting paid titles are planning to charge as much for digital subs as for print subs. For example, HBR will stick with its existing sub prices ($118 for domestic, $165 for international), as well as its print single-copy price ($16.95).
A senior consumer marketer at a major consumer publisher that intends to offer digital versions once content copyright issues have been resolved says that the company will launch with the same introductory rates charged for print subs, and see how consumers respond.
Some titles may even be able to successfully market dual digital/print subs at higher prices. Or, they may be able to sell users on paying more for a digital subscription because of its timeliness and Web-enabled capabilities. One of the vendors reports that at least one time-sensitive magazine is considering charging more for its electronic version.
The three vendors are using somewhat different pricing models. While electronic delivery costs are lower than the mail, there are also prep costs, which are either being broken out or included within a combined per-copy charge.
Vendors maintain that, even with prep costs, electronic versions will prove less costly than print.
Some publishers aren’t so sure. Magazines that are already computer-to-plate, or already being digitized for the Web, are in good shape for digital versions. But ad formats and edit conversion could be problematic for some.
“We have some advertisers who still submit in film, and we wouldn’t be eager to impose a single format on our customers,” says Masse of The Sporting News. “And we don’t have the requirements to prepare all of our editorial pages. We would need to be in PDF format, and we’re not now. A lot of man hours are involved in the file conversion.”
“It’s not clear yet who’ll pay for modifications to meet the specifications of the agents,” says Peter Meirs, director of alternative media technologies at Time Inc. “The costs of conversion and preparation of pages for [a vendor’s] system could be high if the print creation process is extremely dissimilar to the electronic page creation process.” (To address such prep issues, qMags says it’s about to acquire a controlling interest in a major prepress vendor.)
CONTENT COPYRIGHTS, OTHER CHALLENGES
The biggest challenge associated with digital versions at present is freelance edit and purchased graphics rights and payment issues. Publishers lost the first precedent-setting case in this area, Greenberg vs. National Geographic, and are closely watching the outcome of the copyright case now being decided by the Supreme Court, New York Times vs. Tasini. Publishers argue that they have the right to convert articles to electronic form under the “collective work” principle, while freelancers say they should receive royalties because most contracts specify one-time, North American use.
Some of the biggest publishers acknowledge that they’d like to try digital but are holding off until it’s clear whether the Court will confirm that publishers’ rights extend to the electronic arena.
“There may be some substantial cost to publishers to secure the electronic use rights for images,” says Meirs. “The cost for universal rights versus single rights could be pretty high. There is no guarantee that the additional costs will be covered by additional revenue.”
Meirs is a formal advisor to Zinio, and Time Inc. is testing with Zinio. But he stresses that he also works closely with the other two companies and that TIme Inc. is “keeping all of its options open” with vendors.
Copyright issues are also one big reason that only Hearst’s Popular Mechanics is jumping into digital at present, according to McGill. PM is the only Hearst title that has specifically secured digital use rights in all of its graphics and writing contracts.
Many are waiting to see the outcome of the Tasini case. On the other hand, Flanders says that HBR’s attorneys are “very comfortable that our current rights cover this use, because what readers are getting is the same product that you get in the mail.” Others are negotiating new fees that include all rights. Magazines seem to be in better shape in regard to text, which is often staff-written, than images, which are primarily secured from freelancers and stock photo agencies.
There are also fulfillment challenges, although bureaus say that these can be worked out. For instance, most publishers want to be able to maintain electronic and print subscriber records on the same file, but systems are set up to combine or reject duplicate files, says Lynn Reinicke, VP, business development at CDS, which is owned by Hearst and is currently handling electronic fulfillment only for Popular Mechanics.
Fulfillment houses will need to send the electronic equivalent of labels to the digital vendor to notify them whether or not a subscriber is still active and should be sent a magazine. “I’m assuming that we will keep the official record,” says Reinicke. “It’s important that you uniquely mark the electronic subscription from the beginning in order to manipulate the file so that you can get the proper information to [the vendor]. There are probably several ways to do this. A promotion response key would do it.”
Including email addresses on electronic “labels” will require systems changes. And Reinicke says that the electronic distributors will probably have some kind of relationship with the customer–perhaps acting as another customer contact point for electronic version address changes, cancels and suspends–which may pose some challenges. “We need a way to communicate back and forth,” he notes.
HBR, which uses UK-based Tower for international fulfillment, plans to have Tower handle electronic customer contact while NewsStand does the delivery “By the time we institute subscriptions, we hope to have one bill for customers who get both print and electronic versions,” says Flanders. Billing and back-office matters will be handled in the U.S. by HBR’s domestic bureau, EDS, and internationally by Tower. “We see NewsStand as the delivery agent, which is not to say that people won’t sign up on the NewsStand Web site, but that information will be passed on to the fulfillment houses when we’re up and running,” Flanders says.
Hearst’s Day says that working out order processing systems could take more effort than publishers might imagine.
WILL CONSUMERS ACCEPT DIGITAL MAGAZINES?
Reader acceptance levels and sub volumes will obviously be a major determinant of how much real impact digital versions have on bottom lines.
“After the legal and operational issues are solved, there’s evaluation to be done on the consumer side before our magazine moves forward with electronic delivery,” says Masse. “Both NewsStand.com and Qiosk.com present research that says that consumers will want digital versions. But, as always, the proof is in the execution.”
Like PM’s McGill, Masse says that the next big steps “to make this a no-brainer, from a subscriber point of view,” are slim, folder-sized PC’s and fast, wireless connections.
“The public has a certain expectation of what a magazine is in terms of color, resolution, the tactile experience,” says Time Inc.’s Meirs. “They won’t easily change those expectations until the combination of quality, ease of use and user experience makes them indifferent to the media type.”
But the research does look promising. In a recent beta test commissioned by qMags and independently conducted by MRI, over 100,000 subscribers from 14 magazines and 10 publishers were randomly selected and asked to visit a beta site. More than 28,000 did so, and 6,800 completed a survey.
Sixty-one percent said that they’d consider buying the digital product in the future, 69 percent said they were interested in subscriptions, 66 percent in single copies, and 46 percent in individual articles. Sixteen percent said they would prefer digital to print, while 31 percent were neutral. Between 65 and 75 percent said they liked the Web capabilities and conveniences, such as archiving, and 80 percent said they like the environmentally friendly aspect of not using paper.
Most agree that reading software shouldn’t be a problem, from a consumer standpoint Qiosk uses Adobe Acrobat Reader, which has a large installed base of users, and is offering downloads of the software (plus Apple Quick Time Player). Zinio and NewsStand use proprietary programs, which are adaptations of Acrobat, and are also supplying free downloads. Publishing clients of qMags and NewsStand say that downloading has worked well in tests, and users seem comfortable with the technology.
Among consumer magazines, Masse speculates that digital versions “will probably attract those with a younger, early-adopter mindset, at least initially. Whether or not those people exist in meaningful numbers, I don’t know,” he adds. “My question is, can we get 10 percent of our circulation this way now or just two percent? If it’s just one or two percent, we’re talking about a lot of effort for little return.”
The Three Digital Delivery Players
* NewsStand, Inc. is a Texas-based corporation founded in 1999. The company is backed by venture capital from SSM and Noro-Moseley. Its base business is electronic delivery of traditional print media.
NewsStand’s founders, Tracey Jones, Douglas Dobbs and Billy Taylor, are internationally known for video conferencing and programming. The New York Times is a minority owner.
* Qiosk.com (qMags.com) is a year-and-a-half year-old company, founded by Dan Schwartz and Richard Seet. Schwartz is chairman, founder and publisher of the Asian Venture Capital Journal and M&A Journal. In 1988, when the titles were economically troubled, he converted their total circulations to PDF delivery, not giving readers an option. Seet was formerly a principal in The Carlyle Group. In December, United Business Media led series B investment in the company qMags.com’s advisory board includes Don Kummerfeld, president and CEO, Federation of International Periodical Publishers and former president of Magazine Publishers of America; Bruce Barnett, former CEO of Cahners Business Information; Reg Brack, former chairman and CEO of Time Inc.; and John Mack Carter, former president of Hearst Magazines Enterprises, as well as executives from major advertisers and agencies.
* Zinio Systems is a San Francisco firm that develops online content delivery technology. It closed its series B financing in May, raising more than $5 million. The financing was lead by NEA (New Enterprise Associates). Zinio’s founder and CEO is Kevin McCurdy, who also founded Bamboo.com. He developed Bamboo.com’s 360-degree panoramic technology and took the company public on the NASDAQ. Zinio is is currently doing usability testing and market research, and is targeting a first-quarter 2002 launch for delivering digital magazines on its service. Its advisors include Francis Pandolfi, former CEO of Times Mirror, and Peter Meirs, director of alternate media technologies at Time Inc.
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