Digital Media Still About Business Models

Michael Hedges February 21, 2011 Follow on Twitter

Digital development within media organizations seems to pass through four stages. The first response was to ignore it and maybe it would go away. The second was to loath it and maybe it would die. The third, now present, is to challenge it and maybe it can be controlled.

Newspaper publishers are the latest set of media divinity to face, so to speak, the digital music. The music and film industries faced it earlier and tried new dance steps. But the newspaper people keep falling all over themselves, inadvertently stepping on toes, because their idea of new digital business models is nothing more than the old print model, says a recent analysis by German consultancy OC & C Strategy (February 17).

“Tablet apps will win but, more important, the most (publishers) can expect in the long term from downloads is less than ten percent of print revenue,” said the report’s co-author Andreas von Buchwaldt. “Ultimately they are only one element of a successful multi-channel strategy. Media companies have to make their content not only tablets but for netbooks, smartphones and TV and print and in a form specifically for each channel.”

Savings in paper, printing and distribution doesn’t compensate for the high cost and sharp learning curve of digital development.  “Publishers currently base prices of apps on print products, which are prohibitively high for digital users accustomed to free content,” wrote von Buchwaldt. “What applies to the iPad world is generally valid for all digital content. If the same content is freely available elsewhere, no reader will be willing to pay for it. It is important that the user perceives the value as high with exclusive content, professional content and offering a high-quality experience. Users can understand that original content costs quite a bit.”

So far, digital media technology has delivered wealth in any definition beyond the wildest expectation. This is not limited to FarmVille creator Zynga being valued at US$ 10 billion. People continue to line up for the every new device and service. Because of that, digital technology voraciously consumes – rapaciously, some say – content of every kind

Users, says the report, are not convinced about value. “Discontent with media apps is resulting from incorrect pricing. In the future product design must be more closely oriented to user expectations. Publishers can, indeed, rely on the willingness to pay for editorial content but it is far less than with movies, games or music.”

Coincident with the OC&C Strategy report, a select group of publisher representatives met in London for an emergency Apple summit organized by the International Newsmedia Marketing Association (INMA). Apple recently said previously published rules on apps and content would soon be enforced. Newspaper publishers, following in the footsteps of the music industry, wants more control Apple’s popular products, iPhone, iTunes and the iPad.

The “robust and sometimes intense discussion” yielded four points of contention, according to the INMA statement (February 17). Interestingly, none of the 50 to 60 newspaper executives said to have been in attendance made separate statements.

In the time honored tradition of newspaper defensiveness, the publishers first raised censorship and transparency issues. “We appeal to Apple to change its rules and practices that led to the rejection of apps in some European countries regarding content considered legal and appropriate in those countries,” said the INMA statement. Apple consistently rejects apps sold through the iTunes Store that even walk up to the soft porn line. It is, of course, a family store.

The publishers also want “platform providers” to “assist all developers – including content providers – in the interpretation of guidelines to expedite the development process.” Apps developers have long complained about Apple’s “walled garden,” which the company defends as necessary to recover development costs and, not insignificantly, “protect the park.” Google, long an object of scorn for some well-known content producers, countered almost immediately with its One Pass program offering publishers a better deal.

Third on the list of publisher demands – and getting closer to the heart of the matter – is access to data. Apple won’t give up data – names and numbers – of subscribers coming in through the iTunes Store. Publishers want “a direct relationship with customers” for every reasonable marketing function. So does Apple.

At the bottom of the list – the bottom line, so to speak – is the money. Apple will take 30% from any app transaction through the iTunes Store, which is the only route to the iPhone or iPad.  This charge, noted the INMA, doesn’t include value added tax (VAT), which can be as much as 20% in some European countries. The VAT for publishers also can be zero. Google’s One Pass plan takes but 10%.

Publishers, said INMA Europe president Grzegorz Piechota in the statement, “don’t want to leave any platform, especially the one that is already popular and provides convenient payment systems. Before taking any antagonistic actions, publishers plan to talk to all technology providers, platform providers, and other stakeholders themselves and with the help of their associations.”

Newspaper publishers, like the music and video industries, are in a bind. The OC&C Strategy analysis suggests it’s a bind of their own creation because many content producers stayed on the sidelines as new media technologies captured the hearts, minds and money of more than early adopters of technology. An all-platform strategy is nearly impossible to execute with new providers, new devices, new platforms and new languages all competing for customers’ attention.

The final stage of digital development requires a leap beyond fear and loathing. The Zen of new media people is give up control and reach for the cloud. Neither the technology people nor the content people seem ready, which makes Facebook worth every penny.

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