cover story

A Second Chance

How mobile devices can absolve journalism of its original sin: giving away online content
July 13, 2010

1 Talk to people who are into mobile reading devices like the Kindle and the iPad, and a scene from the movie Minority Report tends to come up. Tom Cruise, who is on the run from the law, is on a train. Next to him, a man reads USA Today on what looks and acts like broadsheet paper but is clearly digital film of some sort, with animated graphics and flashing news updates. Suddenly, a photo of Cruise pops up on the man’s (and everyone else’s) gadget, along with an announcement that he is wanted for murder.

It’s a bummer for Cruise, but that screen makes techies swoon: paper-thin, it has the slight gloss of a laminate but otherwise looks like typical newsprint, though it is clearly connected to some ultrafast wireless network and can instantly access the limitless information of the future Internet. You get the impression that, after Cruise fled the train, the man folded up that screen, shoved it into his briefcase, and took it out later to find USA Today (or the publication of his choice) waiting with a fresh batch of articles. Alas, no such product actually exists . . . yet. But it’s closer than you may think. Steven Spielberg and crew developed the idea based on input from E-Ink, a manufacturer of so-called electronic paper based in Cambridge, Massachusetts, which The Boston Globe last year called the “hottest technology company” in the Boston area.

Hollywood has long been something of a bellwether for advanced technologies, and that is certainly the case here. In April, I called Sri Peruvemba, E-Ink’s marketing director. The company was involved in one of the most conspicuous recent examples of journalism’s pursuit of this digital Holy Grail: an electronic-paper cover that Esquire magazine used on its seventy-fifth anniversary issue in September 2008. Peruvemba directed me to a YouTube video of critics from Gizmodo, Gawker Media’s popular gadget site, trying to “hack” it. “Wait until they get the knives,” Peruvemba chirped, after I noted the cover’s impressive resistance to the hackers’ attempts to tear it apart by hand and light it on fire.

Rugged, shatterproof screens will be a key feature of future e-readers, but overall, Gizmodo was lukewarm about Esquire‘s experiment: “This is really slick in some ways–as far as attention goes–but the bigger thing it shows is the terrible lack of understanding that most magazine editors have in dealing with the digital future of their publications.” That’s probably true. The New York Times reported that Esquire made a six-figure investment to develop the battery alone–hardly a sustainable model for the industry, even if Ford did buy an ad, executed on e-paper, on the inside cover.

But it’s not just the battery; it’s the gimmicky, one-off approach. Media outlets are still having a tough time seeing beyond their own dwindling print runs, and it was only three years ago that electronic paper helped incite what has been called the “e-reading revolution.” It’s not much of a revolution yet, but what is increasingly apparent is that mobile devices have the potential to offer the journalism business that rare and beautiful thing: a second chance–another shot at monetizing digital content and ensuring future profitability that was missed during the advent of Web 1.0.

I use the word “potential” because there are many ifs and unknowns undergirding this notion of a second chance. But I use it also because so much of the hype about how e-readers could save journalism that has poured forth since the release of the iPad in April (actually, such articles have been appearing since the launch of the Kindle in 2007), ignores–or fails to grasp–what’s really going on. Proponents of the revolution believe that a richly designed and robust mobile reader will be a boon to digital subscriptions, and more importantly to advertising, in a way, and at a rate, that the Web has not. What this theory hinges on, though–and what the hype has tended to overlook–is the need for the media companies that create news and other editorial content to reclaim control over the channels of delivery for that content–the kind of control they had when the printing press was still at the center of our information universe.

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While it is fine (in fact it’s crucial) that your newspaper or magazine be available by subscription on the Kindle or by app on the iPad, that alone isn’t enough. There are some fifty e-readers using e-paper screen technology on the market worldwide, in addition to the iPad (which actually uses LCD technology rather than e-paper). Of these, the most popular by far are the Kindle, the Sony Reader, and the Barnes & Noble Nook. As Amazon has forcefully demonstrated during its pricing wars with book publishers, however, relying on a third-party device maker and content retailer can be limiting in important ways. Amazon takes around 65 percent of the revenues from e-book sales (at the end of June, Amazon began offering publishers the option of flipping the equation in their favor, but doing so means sacrificing a significant amount of control over the book’s pricing). Apple has been more generous to publishers, taking only a 30 percent commission on sales, and media companies hope that the launch of the iPad and other more publisher-friendly e-readers will force Amazon and other content and device “e-tailers” to strike more agreeable bargains.

But if publishers developed, or subcontracted the development of, their own content management system for mobile devices, and opened their own digital stores to sell that content, then in theory they could charge for subscriptions and effectively cut out the middleman. They could then use this paying, engaged audience–and the demographic information that comes with it–to attract advertisers. There are signs, nascent and tentative, that this is beginning to happen.

2 For the moment, a project called Next Issue Media is the boldest and most comprehensive of these efforts. Founded in December 2009, it is a partnership of five lions–Condé Nast, News Corporation, Hearst, Meredith, and Time Inc.–that have banded together like some Voltron of mass media, out to save the news business. The idea is to set up a one-stop clearinghouse for digital newspaper and magazine content. Publishers and consumers could use it to distribute and purchase content for a variety of smart phones, e-readers, tablets, netbooks, desktops, and laptops (the emphasis, though, is on hand-held mobile devices). The group has no plans to develop its own e-reader, but it does intend to “partner with device manufacturers and software developers to create technical and universal standards for our new, comprehensive e-reading initiative.”

The Next Issue folks are cagey about the details of their operation, preferring to wait until they have an actual product to show off. But John Squires, who left his job as an executive vice president at Time Inc. to captain Next Issue Media, tells me that one of the first priorities is to develop a simple, open-platform system that makes it easy for publishers to distribute and format their editorial content for a variety of different screens–“one that renders the distinctive look and feel of your publications across multiple devices, operating systems and screen sizes,” as the group’s Web site puts it. “It is critical for publishers to continue to own and manage customer relationships directly,” Squires says.

This back end will facilitate a kind of online store–an iTunes for news, if you will–where people can subscribe to a variety of publications for as many devices as they like. Squires calls this a “fairly complicated technical challenge.” Indeed, the new media editor at NRC Handelsblad, a Dutch newspaper that has been publishing digital editions of its product on several e-readers since 2008, says that setting up an efficient publishing platform is a challenge, but the first, and perhaps most important, step toward capturing readers. He stressed, however, that trial and error is the only way forward, and that publishers should not wait “for the perfect ecosystem” to begin experimenting with new digital products. (Europe, in general, is further down this road than we are in the U.S., but more on that later.)

The next step is to develop a similarly simple procedure for advertisers to launch new campaigns with one or multiple publishers on one or a range of devices. Squires says Next Issue Media will work with the advertising industry to develop new metrics and analytical tools that will be different from those used to evaluate print and Web advertising–again, details are sparse, but the idea is to measure “engagement” with ads rather than “clicks.” This likely means spending more time analyzing how long readers linger on a page, especially one with a large ad (although, to some extent, this is done now). The scheme will allow each publisher to control the sales and pricing of its advertising on the platform.

This all will take time, of course, but Squires says there will likely be some significant announcements from Next Issue by late summer or early fall.

All of the companies in Next Issue Media were relatively farsighted, technology-wise, even before they joined forces, and perhaps none more so than Hearst, which helped launch E-Ink back in 1997. Hearst continues to play a trailblazing role, having invested in a company two years ago called FirstPaper. We didn’t hear much about the company until late last year when, rebranded as Skiff, LLC, it launched a slick Web site [which has been effectively taken down since this issue went to press] that outlined its goals. Like Next Issue Media, Skiff wants to create a publishing and advertising infrastructure on the back end with an online store at the front, but the two projects are independent of each other. Unlike Next Issue, Skiff is also testing the hardware waters, having developed a reader with an eleven-and-a-half-inch e-paper touch screen. It’s a flexible display, which makes it shatterproof, rugged, and light, but it is set in a rigid frame (which houses supporting electronics). It looks sort of like a hybrid of the Kindle and the iPad, but will probably lean heavily toward the former in terms of functionality. That is, if Skiff releases it at all.

In June, as this issue was about to close, News Corporation bought Skiff from Hearst–but it only bought the publishing platform, leaving the future of the reader, which was a hot item at the Consumer Electronics Show in Las Vegas in January, uncertain. Indeed, before the deal was announced, several people I interviewed were under the impression that Skiff was rethinking its planned launch of the reader in order to focus on the publishing, subscription, and advertising platform–like Next Issue Media. Both Hearst, which still owns the reader, and Skiff declined to comment.

While Skiff’s reader awaits its fate, its main rival, a device called Que made by a company called Plastic Logic, is moving ahead and targeting the business community with the pitch that it offers “news that looks like news.” It is also an e-paper, tablet-style device with a large, flexible touch screen, and the Que store has signed up some two dozen newspapers and magazines. Although Plastic Logic doesn’t have a Hearst bankrolling it, USA Today and the Financial Times, as well as the Detroit Media Partnership, which manages the Detroit Free Press and The Detroit News, have worked closely with the company throughout the development process.

Patricia Kelly, the vice president in charge of digital solutions at the Detroit Media Partnership, says this “is a better approach than waiting for somebody to come out with something and asking, ‘How can we get on there?’ ” For instance, a newspaper would have a wish list for the page design on a reader that would be very different from what the Kindle offers, because the Kindle is built for books, and that is what most people use it for.

Building the devices and the infrastructure is a crucial first step on the road to a second chance. But once the storefronts are built, will the readers come? More importantly, will they pay?

3 It is important to understand that e-readers have thus far done nothing to fundamentally improve the journalism industry’s bottom line. Many media executives interviewed for this article described themselves as “bullish” about the long-term potential of mobile devices. They see an opportunity, but don’t know how big it is, and most are skeptical that subscription and advertising revenues will ever return to pre-Internet levels. Moreover, a number of authorities on the subject, such as Sarah Rotman Epps, who studies e-readers and the news media for Forrester Research, stress that many big media companies have “legacy problems”–debt, overhead, real estate, inflexible labor structures, etc.–that technology will never overcome. Within that context, a lot is possible, but a number of variables will determine whether the second chance is as profound a moment as some think.

The first and most significant variable is whether–and why–consumers will continue to pay for content on mobile devices. The fact that many people have already accepted the need to pay is, after all, the e-reader’s most elementary magic from a publisher’s standpoint. There are many theories about how the magic works. One of the most logical is that mobile devices have enabled what Epps calls “a return to curated computing.” Basically, the subscriptions on a Kindle or the apps on an iPad provide a more restricted reading experience than the Web, but in a way that enhances the experience. Unlike the chaos of links, summations, images, and ads on a Web page, mobile readers give you a simple, curated list of top stories, period. Think of surfing the Web as wandering through a museum warehouse, piled with every dusty knickknack it ever collected, and using mobile readers as visiting its galleries, where experts have lovingly gathered highlights. This restricted experience, the theory goes, adds value to the news product and makes people willing pay for it.

But there is also a transactional aspect to the magic–people need an easy way to tender their payments. Mobile devices enable publishers to collect money from consumers in a way that hasn’t existed on the Web since America Online’s heyday in the 1990s. In that era, people gave AOL their credit card numbers, and in return got both access and proprietary content like e-mail, games, and news. The content was, in essence, tied to access. When broadband arrived, content and access were disaggregated. We began paying an Internet service provider, like Time Warner Cable, for access, but it no longer came with e-mail, games, or news. That content could be found elsewhere, of course, and plenty of sites were giving it away for free. That is how the Web effectively tricked the journalism industry into believing that people won’t pay for a well-curated news experience, even if you make it effortless to do so. Mobile readers, some believe, are reconnecting access and content.

Squires suspects that one of the reasons Amazon was able to incite the e-reading “revolution,” such as it is, was that it already had thousands of its customers’ credit cards on file when it launched the Kindle, which made it easy for them to buy books. The same holds true for the iPad and iTunes App Store. Once again, one credit card buys access and all the content–including news–that a consumer desires. “One of the biggest issues about content providers getting paid was not that their content wasn’t valuable, it was that they didn’t have an effective way to bill the consumer,” Squires says. “It’s almost as simple as that.”

Here’s where it gets tricky, though. Web browsers will likely always be popular, because the larger walls of the Internet have been permanently torn down (AOL can attest to that) and people want all that free content to which those browsers provide access. News outlets’ Web sites are currently the path of least resistance to their work. What publishers must realize, then, is that the golden egg of the “revolution” is not that e-readers offer a second chance to monetize digital content on mobile devices alone, but rather digital content on all platforms. Web sites must be pulled into the equation. “As a publisher, you’re going to have to figure out what you want to do because you can’t give it away for free one place and charge in another,” Squires says.

If consumers are willing to pay for content, then the next question is how to structure the pricing for a store that services a range of devices and publications. Next Issue Media, Skiff, and a number of individual media companies are talking a lot about single-copy and subscription models with one price for access to content for all your devices, mobile or otherwise. By offering this news bundle, outlets would, in essence, be creating a valuable new service–the multiplatform, single subscription–rather than just suddenly charging for an old one that used to be free. This digital subscription might also be bundled with the print edition, but for the foreseeable future news outlets are likely to go with some sort of tiered subscription structure with options for print-only, digital-only, or “everything.”

The Wall Street Journal has used such a system to become the largest circulation daily in the country. The weekly subscription to its iPad app is $3.99 (but is available to subscribers free for a limited time), compared to $2.69 for print and online, $2.29 for print only, and $1.99 for online only. Its Kindle subscription runs $14.99 per month, a bit cheaper than its iPad app. (The Journal sidesteps sharing subscription revenue with Apple by making its app free and requiring customers to pay the Journal directly to register to use it, which is ingenious if cumbersome.) Amazon doesn’t release newspaper subscription numbers, but the Journal recently disclosed that it has 64,000 iPad subscribers and 15,000 Kindle subscribers, compared to its daily print circulation of nearly 2 million.

That’s probably a high benchmark–many publications have only a couple hundred e-reader subscribers. Official, industry-wide statistics on e-reader subscribers are scarce, but these numbers are sure to rise, perhaps dramatically. Also, in order to maintain the optimal balance between quantity and “quality” of their readers and viewers, news outlets will likely have to keep some content–especially short, breaking-news updates–outside of their digital paywalls, as The Wall Street Journal does now.

At ten to twenty dollars per month, on average, subscriptions won’t add up to much, especially if publishers are not able to regain some modicum of control over pricing (whether through the so-called agency model with third-party retailers or through their own stores). Moreover, surveys conducted by Forrester Research have shown that consumers expect a 40 to 50 percent discount on the price of yearlong subscriptions and single issues relative to print editions.

But subscriptions have never paid the bills for newspapers. Advertising, of course, was the moneymaker, and this is the major shortcoming of the Kindle and its e-paper ilk. Once you’ve got the infrastructure and the subscription system in place, you need to crack the ad problem. The fact that no model exists to get ads onto these devices has left many media companies that have worked with Amazon angry and frustrated, and despite repeated promises that such capability is on its way, nobody is sure when it will arrive.

Meanwhile, Apple’s new operating system (OS 4) for iPhones and iPads, whose release is expected sometime this summer, will include the new iAd mobile advertising platform, which news outlets and other developers can use to embed personalized ads directly into their apps. It works just like Google’s AdMob service for standard Web sites, but has the same limitation as AdMob insofar as Apple, rather than publishers, retains control over ad sales and strategy. Apple plans to take a 40 percent cut of the ad revenue. And like Google, Apple will probably go after the largest, national advertising campaigns rather the locally oriented, small- and medium-sized ones that have been periodicals’ bread and butter.

It is unclear how Skiff and Next Issue Media’s advertising services will compare to iAd and AdMob. Both will surely feature some kind of revenue-sharing agreement with publishers, but again, Next Issue says the publishers will control ad sales and pricing, which is a step in the right direction for the news business. Once the infrastructure is in place, many media executives believe that paying mobile subscribers will present an attractive, captive audience to advertisers, especially given some of the hyper-targeted advertising possibilities that the devices will allow.

4 From subscription structure to advertising, there is a lot we don’t know about how the e-reader market will take shape for the news business. The answers will come only through aggressive experimentation, through trial and error. That process is well under way in Europe, and the efforts there have some lessons for the U.S. market. A Flemish paper that handed out 200 e-readers to subscribers in 2006 and measured their response found that most of them likened the experience to reading the paper product rather than the Web site, and 45 percent said they would consider buying an e-reader. NRC Handelsblad, the Dutch newspaper, expanded delivery of its digital edition to a variety of devices after an exclusive launch on the iRex iLiad reader in 2008 drew “substantial sales.” In other words, people like these things and will pay to get news on them.

Next Issue Media has also done consumer research and found a high level of interest in e-readers and digital news, especially once people have seen a demonstration. Nonetheless, in the U.S., most media companies have so far proceeded with caution. “What I see is a lot of watching, waiting, and one-off initiatives,” says Forrester’s Sarah Rotman Epps.

There are signs–beyond Next Issue, Skiff, and Plastic Logic–that this may be changing. MediaNews Group, which owns fifty-four small- to large-sized papers across the country (plus over 200 niche magazines), is, like Next Issue Media, trying to create the back-end infrastructure so that its properties can distribute content across the range of digital platforms (it also has deals with both Skiff and Que). And three years ago, the Reynolds Institute at the University of Missouri launched the Digital Publishing Alliance, comprised of more than thirty news outlets, technology companies, and media organizations, which is researching the mobile market and developing best practices and standards for e-readers and other mobile devices. (For an interview with DPA’s Roger Fidler, go to

But given the state of the economy and the general beaten-down mood in the American news business, it would be naïve to suggest that a full-blown e-reader revolution is at hand. Some four months before an Audit Bureau of Circulations survey*–which found a high level of interest in e-reader editions among media executives–for instance, in March 2009, the Digital Advisory Committee of the Newspaper Association of America–a body that includes senior digital media executives from member outlets–held a first-of-its-kind meeting with e-reader manufacturers in order to acquaint participants with some of the emerging products.

While the group didn’t necessarily see the devices as a game-changing technology, according to Randy Bennett, the NAA’s head of business development, many intuitively recognized the opportunity to rebuild some portion of their former revenue streams. A few months later, Derek Robinson, Bennett’s counterpart at the Cox Media Group, which owns forty-three newspapers, built a financial model to measure the potential economic effects of moving a thousand subscribers from print to electronic delivery. The answer? It would take a newspaper 4.1 years to break even on its investment in the migration.

That doesn’t sound so bad, perhaps, but the model was full of mostly dummy data. For instance, while it used ad revenue of $700 per print subscriber, based on current data from the Newspaper Association of America, it assumed that figure would decrease by only 20 percent on e-readers. That’s a dubious estimate, however. Other NAA data, not used in the model, puts current online ad revenue at $46 per unique monthly visitor–a decrease of 95 percent compared to print.

Still, the point was for publishers to plug in their own proprietary data to determine the feasibility of a print-to-digital migration given their newsrooms’ particular circumstances. Most media executives accept the value of holding on to a print subscriber, however, and all of those interviewed for this article said that while they want to encourage as many e-readers as possible, it would be unwise to hasten the switch to mobile reading.

5 At the end of May, I attended the Society for Information Display’s annual conference in Seattle, where companies from around the world had gathered to show off their latest screens, using a variety of technologies. Device manufacturers sold roughly 1 million readers using e-paper displays in 2008 and 5 million last year, according to DisplaySearch, a market research firm. That is expected to grow to 14.5 million this year. By 2018, DisplaySearch predicts that more than 90 million units will be sold around the globe, including 20 million with ten-inch or larger screens that the company has begun referring to as “e-newspapers” and “e-magazines.” Together, the Kindle and Sony Reader control more than 50 percent of the market, but everyone agrees that there is plenty of room for “disruptive” technology innovation to catapult a newcomer to stardom.

The iPad, which sold a million units in its first month (the Kindle sold half a million during its first year), has brought more attention to e-readers and mobile devices in general. Since the iPad’s emergence, there has been much debate about whether or not it will become the so-called “Kindle Killer.” It is fairly safe to say, given their different qualities and ways that consumers will use e-readers–for instance, reading (Kindle) versus entertainment (iPad)–that this won’t be the case.

But what became clear to me while reporting this piece, and was really driven home at the Seattle gathering, is that the debate over which technology, or device, is superior is mostly beside the point. The rate of evolution is moving so quickly that in ten years e-readers will have become like televisions and cell phones, meaning there will be hundreds of affordable varieties that basically do the same things. As Cox’s Derek Robinson reported in March, in an update to his survey that he provided to the NAA, “E-readers may just be the tip of the iceberg. . . . We as an industry have begun to look beyond e-readers and are now considering the entire ecosystem of ’emerging platforms.’ ”

That is why staying ahead of the technology curve–both for hardware and software–is crucial. As device manufacturers race toward that do-it-all e-reader of the future seen in Minority Report, media companies must follow Next Issue’s lead and make strategic partnerships that will allow them to influence the products and retailing mechanisms coming to market. The circulation levels and ad dollars of yesterday may be gone for good, but there are real opportunities to reclaim control of journalism’s financial future. Second chances are rare, and if we miss this opportunity to capitalize on digital content, we may not get a third.

[*Editor’s note: Due to an editing error, the first reference to this survey in the print edition of this article was deleted. We regret any confusion.]

Curtis Brainard writes on science and environment reporting. Follow him on Twitter @cbrainard.