The Big Picture – August 2012

Disruptive technology is hitting more than just publishers.

“Disruptive technology” is how digital media are often described. Yet they are disrupting much more than publishers’ businesses.

As the analyses in this issue of “Wessenden Briefing” demonstrate, digital is also rippling across Royal Mail, helping to drive up its prices to publishers, wholesalers, forcing them to diversify out of newspapers + magazines and retailers, with Click & Collect emerging as a major new battleground to serve the consumer better and faster. All of these developments impact on publishers who are on their own digital journey.

The Ofcom report shows that this journey varies markedly between books, newspapers and magazines…..

• Books are switching from print to digital very quickly, but positively.
• Newspapers are also migrating quickly, but – for many titles – into a revenue black hole.
• Magazines are more perplexing as they are in danger of simply getting drowned out in the background noise of the digital world.

Yet the most fundamental digital disruption is among the various digital media themselves. The penetration and applications of smartphones seem to have taken most people by surprise, even Facebook. The tablet/ereader market is about to fragment with more devices and operating systems challenging the dominance of the iPad and Kindle. The dividing line between a tablet and a smartphone will become increasingly blurred – and confusing to the consumer. So, the digital landscape is becoming ever more complex, not simpler.

There are some key digital milestones reported this month. Both the Financial Times and Amazon have just hit “digital crossover” where their digital businesses have overtaken their print operations. PwC is predicting that “digital balance,” where the digital gains compensate for the print losses, will be reached for consumer magazines in 2015, but with digital accounting for only 7% of total circulation revenues by 2016: not very much and a long time off.

Enter magazine bagging: a prime example of publishers just getting on with the day job, simply and aggressively, and trying to protect their print revenues, which are going to continue to fund everything for the time being. The pricing of Times Newspapers subscription packages shows some more strategic thinking about pricing-by-channel starting to emerge. Yet central to any pricing strategy is publishers’ continued control over the consumer price itself – something that is coming under increasing pressure.

As the PPA’s new Business Models for a Digital World report shows, publishers are trying to hold on to what still works now while juggling with what might work in the future. A digital agency working for Tesco recently described its own business model as “pre-revenue”: in other words, it is not yet charging clients for its work! Publishers are worrying about drifting into a “post-revenue” model. The Guardian’s management has publicly given four years as a target date to break even on their newspapers which are currently losing £44m per year and rising. Whether they perfect a “post revenue” model is of more than passing interest to the rest of the media business.

The full article appeared in “Wessenden Briefing” No.162.