Is this the gadget that will save the newspaper?
That angle has been, if not dominant, then significant in the ramped up coverage of the new, bigger Kindle, which Amazon, with the help of one Arthur Sulzberger Jr., unveiled this morning.
The simple answer is: No—at least not as currently configured.
Let’s go to the chalkboard—or the back of the napkin, more like. If every one of The New York Times’s 1.04 million subscribers suddenly switched over to the Kindle at $14 a month, the “paper” would get $175 million in annual revenue (actually less, Amazon takes a cut, though I’m not sure how much). That’s nothing to sneeze at, but that’s probably about what the newsroom alone costs every year—the last figure I saw was $200 million, but that was before some recent cuts.
You can consider that $175 million circulation revenue. That sounds good until you look at the Times 2008 earnings. Last year alone the paper and its sister, the International Herald Tribune brought in $668 million in circulation revenues. How much of that is the Times’s I’m not sure, but a very conservative guess would be at least two-thirds. That would be $440 million.
But, as Tim Windsor, who heads Johns Hopkins University’s digital strategy, pointed out in a Twitter conversation with me, it costs a lot of money to buy, print, and distribute the physical newspaper, something that would be virtually eliminated via the Kindle.
That’s true. The Times loses money on print circulation. Even with that estimated $440 million in revenue it costs much more than that to get it to 1.04 million doorsteps and newsstands every day. The paper would save hundreds of millions on circulation (Riffing off a piece Nicholas Carson did back in January for Silicon Alley Insider, I roughly estimate from NYT Co.’s 10-K that the combined Times and IHT 2008 circulation costs were $1.1 billion. Take away the IHT and the NYT alone is easily $800 million).
The bad news: The Times Media Group brought in $1.1 billion in advertising in 2008 (of course, 2009 will be much lower than that). Knock off three hundred million for the others in the group, including nytimes.com, and it’s still $800 million. The Kindle doesn’t have ads. So, the Times gets zero from that segment.
That won’t cut it.
There would two options then. Put ads on the Kindle or increase the cost of subscriptions.
Both are good ideas. Combine the two and you could have a winner.
Think about it, a New York Times subscription costs me $420 a year. The same newspaper with added features on the Kindle costs only $168 a year. The Times is leaving $250 on the table. Multiply that across its subscriber base and it’s $250 million. Adding that to the $175 million mentioned above, gets you to $425 million in our perfect world—or somewhere approaching head-above-water territory.
Add ads, and you have the possibility of a profitable model. Hell, the ads might be enough to subsidize the Kindle contraption itself (which needs a lot of subsidizing at $489), as Carson half-jokingly suggested. Why doesn’t the Kindle take ads? I don’t know (I’m doing some reporting on that).
Of course, this is all just blue-skying it. It seems unlikely, at least initially, that the NYT could get close to $420 a year for a Kindle subscription (and forget about getting all million subscribers to switch overnight!). The paper would have to shut down its website or at the very least charge for it. You for sure couldn’t charge big bucks on the Kindle to a mass audience when they can get it free on a computer screen. Of course, that logic makes sense for the print edition, too, and you still have 1.04 million people who pay for it every day.
But the paper should charge for its website. Like, tomorrow. The Kindle points up the dumb business model (as in: no possible way of working) that newspapers have pursued on the Web. Why charge on Kindle when you don’t on the Web?
Notice how the Journal was the only paper in the top 25 to gain circulation in the last six month? That’s primarily because people are seriously interested in financial news right now. But it’s also because it doesn’t have downside pressure on circulation, because readers know that to get the Journal, they have to pay for it, unlike the Times.
The Kindle, at least, is a hopeful step in the right direction.
UPDATE: I should clarify that this post was meant to look at the economics of the Kindle itself as simply and clearly as possible, and how a Kindle subscriber stacks up against a newspaper one from a business perspective. It’s not an all-or-nothing situation, though. Some combination of Kindle-type device, newspapers, mobile, and Web is what will happen in the real world.