Media

Digital Media Dreams, Elusive Profits


Digital Media Dreams, Elusive Profits

Illustration by Tracy Ma

On the morning of Oct. 18, shortly after publishing a Newsweek cover story entitled, “Heaven Is Real,” editor-in-chief Tina Brown informed her staff that the magazine itself would soon be joining the afterlife. In a challenging environment for print advertising, Brown explained, she and executives at Barry Diller’s IAC (IACI) had decided to instead publish Newsweek Global, a digital-only magazine supported by subscriptions and targeting “a highly mobile, opinion-leading audience” that consumes news on tablets, e-readers, and smartphones. “Tablet use has grown rapidly among our readers and with it the opportunity to sustain editorial excellence through swift, easy digital distribution,” Brown wrote in a memo to her employees.

Newsweek and plenty of other print publications (PC Magazine, Gourmet, and SmartMoney) have embraced digital-only strategies, encouraged by the proliferation of tablets and the growth in digital advertising over the past two years. However, industry analysts say going digital, while a reliable approach for rapidly cutting costs, remains an uncertain path to revitalization. “It’s a knee-jerk reaction: ‘Well, I’m not making it in print, so I’ll go digital-only,’ ” says Audrey Siegel, president and director of client services at TargetCast tcm, a media agency. “We all know that, even though money is moving there, digital budgets are smaller.”

From 2009 to 2011, digital ad revenue for consumer magazines grew 50 percent on a global basis while print ad revenue remained flat, according to PricewaterhouseCoopers. Even so, the digital ad market for consumer magazines remains relatively puny ($2.1 billion in 2011) compared with print ($28.7 billion in the same year). PricewaterhouseCoopers projects that in 2016 the digital ad market for consumer magazines will reach $5.5 billion vs. $30.9 billion for print ad revenue.

Newsweek Global, which will launch in early 2013, will have to compete for ad dollars not only with the digital operations of its print adversaries, such as Time, but also with a new breed of search engine and social media news outlets such as BuzzFeed and the Huffington Post; robust indie blog networks such as Gawker Media; and video-savvy general news sites such as CNN.com (TWX).

Newsweek doesn’t have a significant stand-alone presence on the Web. In 2010, IAC merged Newsweek.com with the website of the Daily Beast—a digital news and analysis site that IAC had launched two years earlier. In August 2012, the combined Daily Beast and Newsweek Web operation attracted 5.6 million unique users in the U.S., according to Nielsen (NLSN)—well behind the top general news publishers, such as CNN Digital Network (40.8 million), HuffPo (33.1 million), and the New York Times (28.5 million).

Newsweek executives aim to supplement digital advertising revenue with money from paying subscribers. According to the Audit Bureau of Circulations, Newsweek currently has 41,000 digital and 1.5 million print subscribers. That total is down 42 percent from 2009. Baba Shetty, chief executive officer of Newsweek/Daily Beast, said he expects “at least hundreds of thousands” of current print subscribers to pay for the digital edition.

The brief history of tablet-centric publishing isn’t encouraging. In 2011, News Corp. (NWS) launched the Daily, an ambitious foray into tablet-centric news production. At the time, CEO Rupert Murdoch said the Daily, which costs $39.99 a year, would break even at 500,000 subscribers. In July 2012 editor-in-chief Jesse Angelo informed his staff in a memo that the Daily had managed to attract “over 100,000” paying subscribers. A few weeks later, it let go 29 percent of its full-time workers. In June, HuffPo launched a digital tablet-centric magazine with a $19.99 annual subscription price; by August, it was giving it away. Marla Kaplowitz, CEO of MEC North America, a media agency, says getting tablet and smartphone readers to pay for general news when so much content is free remains challenging. “I don’t think anybody has really cracked it yet.”

The bottom line: By exiting print, Newsweek’s online edition will compete against far bigger Web rivals in a far smaller—$2.1 billion—digital ad market.

Gillette_190
Gillette is a staff writer for Bloomberg Businessweek in New York.

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