Google Digital Newsstand & 2 Other Industry Myths

With so much bad information in the marketplace, many publishing industry CEOs are making bad decisions about their digital magazine publishing strategies

I had the pleasure of spending the evening recently with a group of publishing industry colleagues – most of them company CEOs. Unsurprisingly, the conversation turned to digital publishing, digital newsstands, and the programs offered by Apple, Amazon, Barnes & Noble, Zinio, and the rumored Google Digital Newsstand.

Digital Newsstand Remit Rates

Rumor #1: The Apple digital newsstand will soon drop its 30 percent commission on single copy sales and subscription sales due to pressure from the new Google Digital Newsstand. Further, there is no precedent for anything as high as a 30 percent commission rate or on charging commissions for subscription renewals.

Fact: Apple is holding steadfast on its 30 percent commission. Ironically, Apple is asking for the lowest commission rate of any significant digital newsstand. Some of the above start as high as 65 percent commission on single copy sales and new subscription sales, and no one except Apple seems to be willing to take less than 35 percent. And contrary to the myth being circulated by blogs like TechCrunch, most publishers pay commissions of 50 to 60 percent to their various national and regional print newsstand distributors and retailers. Further, about 30 percent of magazine subscriptions have historically been sold by agents who take commissions as high as 100 percent on new magazine sales.

When I was running Blue Dolphin Magazines in 2003, our average new order commission across 1,400 magazines, newsletters, and newspapers was 83 percent. Yes, we remitted a mere 17 percent to the publishers on average. And like Apple, we also managed the renewal, taking an average 45 percent commission on that business. And we were far from alone. In general, we modeled our commission structure on that of a larger competitor, Synapse, which was tightly aligned with Time Inc., the country’s largest magazine publisher.

Why have magazine publishers been willing to give up the lion share of their single copy and subscription revenue? The answer is quite simple: advertising revenue which makes up well more than half of their total revenue, and which agents of all types have never shared in as a revenue stream. Or put more simply, publishers have happily outsourced single copy and subscription sales because the economics work for them. Personally, I hope that Apple’s generous 70 percent user remit rate causes publishers to refocus their attention on user revenue and user satisfaction. It’s also worth noting that low subscription pricing and low remit rates are a US phenomenon that we have happily not exported to the global magazine publishing community.

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Sharing customer data

Myth #1: If not forced to do so, magazine buyers will not opt shared data collected by Apple with the publisher. This rumor was widely stated by magazine executives and repeated by organizations like the Wall Street Journal and the New York Times. The rumor has taken on the weight of fat and is now quoted frequently by publishing industry executives like those with whom I was meeting recently.

Fact: Consumers are choosing to share their contact information (name, email, zip code) with publishers 60 to 80 percent of the time on subscription sales. As the chart below shows, single copy sales are a significant factor in terms of digital newsstand purchasing, and thus a vast new source of new buyer information for digital publishers.

Myth #2: Print buyers have no interest in accessing the digital editions of their favorite magazines.

Fact: Early data indicates that 10 to 20 percent of print subscribers who are given the option of digital access, will claim it within 12 months of the initial offer. The Economist reports, for example, that approximately 300,000 of its nearly 1.5 million total subscribers have now registered for digital access via their iPad app or subscription website. These 300,000 customers are separate and apart from the 100,000+ customers who have purchased their The Economist subscription through the iPad app or subscription website.

Many unknowns

As an industry, the conversion to digital publishing still holds many unknowns. How can we produce digital magazines that best meet customer needs? What is the right mix of text, photos, video, and interactivity? How will users access our content on the web, on tablets, and on smart phones, if we allow them to do so without restriction? What impact will universal digital access have on retention rates? Who will be the biggest digital newsstand partner: Apple, Amazon, or some player to be named later?

Some things we do know

In addition to the above facts, we also know that about 20 percent of the US population now has access to an iPad or other tablet computer. We also know that heavy magazine buyers are twice as likely to have access to an iPad or tablet device. And finally, we know that every industry prediction of tablet computing growth to date has ultimately been revised upwards.

When you’re standing in the middle of a revolution, there is a temptation to do nothing for the fear of doing the wrong thing. For magazine publishers, doing nothing is perhaps the worst choice of all.