Originally Posted by huntercr
Newspaper and magazine people need to wake up. You are taking your production and distribution costs down to ZERO in this medium. You can cut prices like crazy and you *should*.
The problem for publishers is that this is fundamentally not true. Newspaper publishers make most of their money on print advertising; they make money on paid print circulation, but not even enough to cover the hard costs.
A print subscription to the Times costs about $50 a month, and the Times has paid circulation of about 1.4M. So assume circulation revenue of $840M a year. If the Times converted 50% of its paid circulation to a web-based subscription at $25 a month, the circulation revenue would drop by $210M a year, i.e, $25 a month on half its subscriber base.
But they've also reduced their major source of revenue -- print ad revenue -- by half. New York Times Co. does not break out print ad revenue for the Times, but assume another $840M, or $50 per month per subscriber at 1.4M subscribers, which is conservative.
And we already know that newspapers do not make up their ad revenue dollar-for-dollar when a reader jumps from a print subscription to an online subscription, so assume the Times will lose $25 in ad revenue per subscriber that goes to an online subscription.
So the print ad base drops from $840M to $420M, and the Times only makes half of that back in ad revenue for the online subscription, which works out to losing another $25 a month for every subscriber who cancels his print subscription and picks up an online subscription.
Using all of that math, every print subscriber who drops their $50-month print subscription and picks up a $25-a month print subscription costs the Times $50 a month ($25 in lost circulation revenue and another $25 in lost ad revenue), or about $600 a year.
Your argument is that, by "taking your production and distribution costs down to ZERO in this medium," the Times will break even on its subscribers. For that to be true, and using this conservative math, the Times would have to recoup $600 per subscriber in cost savings to break even.
First, the Times does not reduce its production and distribution costs to zero as long at it prints and distributes a newspaper, which, at the moment, is where almost all of its revenue comes from. Reducing the distribution by 50% will not reduce the hard costs by 50% because the Times would lose half of the scale economies that allow it to circulate to 1.4M subscribers now. Reducing the circulation will actually increase the cost to print and deliver to each subscriber until the Times stops printing and delivering a newspaper, which, again, they can't do today because almost all of the paper's revenue comes from print ads and print circulation.
Second, roughly $200M of the Times' annual operating cost is the newsroom, and the Times would have some additional hard costs -- IT employees, server space, marketing costs, etc. -- that would cost another, say, $20M a year to distribute an online edition even if the Times dropped its print product today.
All of that is not to say that the Times could not eventually be a profitable company that generates most of its revenue from digital editions, but saying an iPad product has no production costs is both wrong (because it does) and misleading (because it will result in dramatically reduced revenue per subscriber for the foreseeable future).
Third, the Times would make only 70% of the iPad subscription revenue if Apple agrees to the same model for print as it has already announced for book publishers, so a $25-a-month iPad subscription would result in only $18 a month in revenue to the Times.
I do think the future business model for newspapers will be paid digital distribution (web, mobile devices, etc.), or free digital distribution with a much better ad-supported model than anyone has been able to do yet -- and no print edition at all -- but that's going to be an expensive and difficult transition.
For the Times to break even online with, say, $220M in hard costs and no print edition, it would need about 900k digital subscribers paying $10 a month (or more if the Times is sharing revenue) and generating another $10 per month in ad revenue. I think that's do-able if the Times can move a critical mass of its print subscribers to digital subscriptions, shut down the print edition, pick up a lot of national and international subscriptions from people who read the Times free online right now, and not topple over during the transition.
I would actually like to see Apple buy a mid-major newspaper and figure this out for the rest of the industry. Apple is much likelier to get this right than newspaper companies who don't understand digital.