Two Newspapers vs. the App Stores

Newspapers' demise can be blamed on many things related to the Internet: Craigslist stealing classified ad revenue, online sites delivering information faster and reducing the value of a subscription, and the tendency for society to flock to shocking images and simple headlines that the Internet excels in and traditional newspapers shun.

However, as the first wave of dead papers finally start decomposing in their graves, it's now up to the survivors to maneuver a new digital strategy that embraces not only the Internet, but the constantly dynamic way we consume content -- currently through mobile devices.

If you run a newspaper, you might think that once you've finally created a mobile application across all platforms, you're set. However, that might not be true, as two preeminent papers demonstrate just one pitfall awaiting these harried survivors: app stores.

The New York Times mobile applications on Android. Source: nytimes.com.

AppleGoogle, and to a lesser extent Microsoft each run app stores to support an ecosystem around their software and devices, and they take a 30% cut from any sales made through their stores. While access to such a distribution network could make fantastic sense for a small developer or company, a newspaper giant with brand recognition might just be losing out on potential profits, and a sustainable business model.

Which leads us to two different strategies:

  1. Pearson's (NYSE: PSO  ) Financial Times avoids these app store fees through a web-based application, accessible through a mobile browser but giving a close-approximation of a native, on-your-phone, mobile app.
  2. The New York Times  (NYSE: NYT  ) participates in each app store, giving the consumer the usual app store experience while forfeiting 30% of its subscription revenue.

What's been the right strategy so far?

Jerry-rigged journalism
The Financial Times print subscriptions have fallen to 237,000 today from over 400,000 in 2006. However, during that same period, digital subscriptions have increased from under 100,000 to over 400,000, more than making up the lost print subscriptions and leading to an increase in total circulation over the period. Readers obviously value the content, and will pay for it -- with prices listed between $35 per month for a standard subscription and about $52 per month for a premium subscription.

 

Instructions for adding a shortcut to the Financial Times web app on an iOS device. Source: ft.com. 

And despite skirting the usual app store route, readers still find and use the newspaper's mobile application. From last July's interim report, mobile readership accounted for "over half of all FT.com subscriber consumption, more than a third of total page views, and 24% of new digital subscriptions." The company added 99,000 digital subscribers last year, and if we extrapolate that roughly 25% of those came from mobile users, at roughly $40 per month, that's an additional $12 million per year in reoccurring revenue -- just through mobile-based subscriptions.

If Financial Times had to send 30% of that to Apple, Google, or Microsoft, it would only have booked $8.3 million in revenue. For the FT Group segment of Pearson, which only brought in $77 million in operating profit in its fiscal 2012, that 30% would have been a huge hit. And as mobile-based consumption, and likely subscriptions, increase, the decision to circumvent app stores is proving to be a slick move.

Polished publishing
On the other side, The New York Times had 730,000 print subscribers in 2013, down from 1.1 million subscribers in 2006. In 2006, The New York Times had an online service called TimesSelect, available to home subscribers as well as on its own that offered premium features like archives access. That year, they had 627,000 TimesSelect users, but only 34%, or about 210,000, purchased it on its own without a print subscription. Now, the company claims 760,000 digital-only subscriptions.

The New York Times digital subscriptions are priced between $15 and $35 per month. While we don't have the number of new digital subscribers that came from mobile devices, we know there were 92,000 new digital subscribers over the year. If we take the same percentage coming through mobile devices as the Financial Times, at about 25%, at an average of $20 per month, the company would have made an additional $5.5 million in revenue per year from the new digital subscriptions.

However, because the mobile application exists within app stores, it shells out 30% of the revenue to the tech companies. This means it would have only brought in $3.8 million in new revenue per year from new digital subscriptions, as $1.6 million would be paid out to Apple, Google, or whomever runs the platform.

Now, The New York Times digital editions still brought in $149 million in fiscal 2013, up from $109 million in fiscal 2012. But as this number increases, a larger dollar sum will end up outside of its balance sheet onto app store providers. And as this is the only growing segment for the company, compared to print circulation or advertising, the future of the company will depend more and more on this revenue stream.

Both have succeeded...for now
Both newspapers have been successful in capturing the value of their product in digital form, and these revenue streams are helping steady their balance sheets and futures. But, as readers and revenues trend toward mobile-only experiences, newspapers might want greater control of their apps outside of app stores, like what the Financial Times has delivered. Otherwise, a strategy like The New York Times might be hobbled by its app store fees.

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