iPad app pricing: A last act of insanity by delusional content companies

Looking at the iPad app rollout, you can easily separate the digital wheat from the chaff in the content industries, and you can see those who are developing digital businesses and those who are trying to protect print margins and who see the iPad as a vertical, closed model to control and monetise content.

There are those who believe that they sell content and that they should be compensated for it. Just as with the music industry, they couch this in terms of repaying content creators, when it really is more about wistfulness for the days of double-digit profit margins.

Those who view their primary business as selling content believe that not only can they charge for it but that they can actually charge the same or more for it, just because it is on the iPad. Time, for example, is charging $4.99 a week for their iPad ‘magazine’.

Scott Karp, CEO of Publish2 and editor of Publishing2.0, put it as clearly as it needs to be put on Twitter:

Paying $4.99 for magazine on newsstand includes cost of printing/distribution. Now you pay for iPad instead, so magazine should cost less.

What do you get for $4.99 a week?

Unique interactivity including landscape and portrait mode, scroll navigation and customizable font size

Oh, I’ve never seen that in a mobile web browser, I say with incalculable levels of sarcasm. That’s like morons in the 90s having Java animation that you actually couldn’t do anything with and calling that interactivity. You think that’s insane and delusional, just wait, it gets even better! No content sharing on the app, which I’m assuming means you can’t bookmark or Tweet your favourite stories, and you’ll have to buy and download the app every single week. There is also no indication that they will charge for their now free iPhone app or their website.

Note to Time digital strategists: Sorry caching your site so I can take it with me when I’m on the move isn’t a feature worth your premium pricing. I do that now, and have done it for years, with an open-source app called Plucker and an aging Palm T3. I’m truly sorry. Do you actually use the internet or digital devices or do you just indulge your bosses’ angry fantasies about the good old days?

Let’s look to Rupert Murdoch’s proud paid content pioneer, the Wall Street Journal. What is the Wall Street Journal selling? The past. Alan Murray, deputy managing editor and executive editor, online for the Wall Street Journal, says on MarketWatch:

We have come up with a version of the Wall Street Journal on the iPad that I think is closest you get to a newspaper reading experience on a digital device.

To be fair to Murray, he goes on to say that anyone giving their content away for free on the web won’t be able to convert those readers on the web to paid readers on the iPad. Murray says:

You have these apps, but you also have a web browser. So I don’t see how any newspaper that is giving its content away for free on the web is going to be saved by the iPad because the iPad makes it easier to access that free content.

Unless the Wall Street Journal’s app not only delivers me a ‘newspaper reading experience’ (which I frankly am not missing anyway) but also picks my stocks for me so that I can retire next year, I’m not going to pay $17.99 a month for it when I can subscribe to their website for $1.99 a week. I didn’t work on a journalist’s salary and still manage to be in a financially secure position by giving money away to grumpy old media moguls like Murdoch.

Paul Kedrosky, venture capitalist and private equity investor who writes the blog Infectious Greed, said on Twitter:

Paying $17.29/mo for WSJ iPad app should disqualify you for something important, like being allowed to use money.

As I’ve said before, Murdoch for all of his brash brilliance has no understanding of the economics of digital businesses. I give him props for still having the power to shift the discussion, and I think that his paywall strategy at the Times might help it stem its £250,000 a day losses. However, his paywall strategy is a defensive move, not a long term strategy. Unless he starts building credible digitally-focused businesses as soon as the paywall brings in some cash to stabilise the business, it will be a brief pause on the path to collapse.

Now, let’s look at other strategies for the iPad. Let’s look at the FT. Robert Andrews, UK editor of paidContent, says that the FT secured sponsorship that allows it to offer its iPad app for free for two months, after which time they will shift to subscription model with the promise of additional features. Much cleverer.

Suw and I talk often that one thing really lacking when it comes to digital content is commercial experimentation. The FT securing sponsorship for a free app for two months is a good step at not only experimenting with content but also with payment models. The Economist earlier this year released a report on social networking, allowing users to download it for free and giving sponsor prominent credit for the offer. This is clever. Premium sponsorship opportunities for special content or services.

Look at the development thinking behind National Public Radio’s iPad app. They did market research and found that up to 5% of their audience were planning on buying an iPad. They knew what the opportunity was. They also used iPad development to improve the experience for visitors coming from search or social networking services, explains Kinsey Wilson, senior vice president and general manager of NPR Digital Media.

Compare the strategies and thinking. On the one hand we have a set of pricing models that deliver marginal value for premium prices and show very little that differentiate themselves from the web experience, although they expect to charge more. These pricing models are based on a sense of entitlement to set pricing as it was in the days of print. I won’t even call them strategies because they lack any kind of realistic strategic thinking.

On the other hand we have a set of strategic pricing structures. NPR takes a realistic look at the commercial potential, does market research and develops its app not just for a single device but also as a chance to make improvements to their overall service. The FT experiments not just with content but also with the commercial strategy.

In terms of who is positioning themselves for the future by delivering value to their audiences and experimenting with business models, it’s clear. If any company thinks that the iPad will allow them to rebuild the monopoly rent pricing structure of the 20th Century, then you’ve really fallen prey to the Steve Jobs’ reality distortion field, and you’ve blown yet another chance to build a credible digital business. However, I’ve got a game you might want to check out, Final Fantasy.

29 thoughts on “iPad app pricing: A last act of insanity by delusional content companies

  1. Who’s to say Time’s pricing isn’t also an experiment? No one’s quite sure what the “new” model will be. There’s going to be some missteps. (And, I agree. $4.99/wk is a misstep.)

  2. ” That’s like morons in the 90s having Java animation that you actually couldn’t do anything with and calling that interactivity.”

    I think a better analogy is when the record companies charged more for CDs than tapes for a decade, even though they were cheaper to make. That worked out pretty well for them for about 15 years.

    Sadly the pace of technological change means all these business models are dead.

    Clay Shirky puts it best when he says that these content creators who insist they have to be paid are being disingenuous unless they include the 2nd half of the sentence: “or we’ll have to stop spending so much to create the content.”

  3. It is easy to assume Murdoch hasn’t a clue, but take a look at BSkyB’s history with Soccer in the UK before you assume it isn’t possible to train consumers to pay £20/month for something that was previously free.
    Thats exactly what he did then and if he can find and monopolise the right ‘must-have’ content, he’ll do it again.

  4. Really, I think it comes down to the simple fact that the people who run out and buy Apple products on launch day have more money than sense.

    What’s that old saying again?
    ‘A fool and their money are soon parted.’

    If you can capture those cash cow fools with your PR, they’ll pay anything to keep up with the Joneses as most of them probably have no concept of what is a good price for something.

  5. I think the analogy with soccer is incorrect. The proper example would be if Sky had continued to make analog broadcasts over the air available widely, then charged more for HD/interactivity/whatever.

    I think the WSJ is probably on the right track, but they have to completely control the content, and charge for access at the same levels. To me the insanity is thinking your ‘extra features’ will entice people to spend money.

    The other variable in this example, of course, is demand. People love soccer, and will pay for it. Do people love the WSJ enough? Time will tell.

  6. Mr. Kedrosky is absolutely correct in saying”Paying $17.29/mo for WSJ iPad app should disqualify you for something important, like being allowed to use money.” Maybe there is psychiatric care included in the cost of the MurdochJournal subscription.

    I subscribed to the Journal when it first went online when it was reasonably priced. Murdoch doesn’t have a clue about people and internet usage. Stupidity and greed will come back to haunt him

  7. I wonder why the authors end this with trying to have the content providers’ behavioral shit splash onto Apple – sort of like a cheap shot attempt we call a “granny attack”. Really lame journalism.

  8. I think there’s a place for voluntary contributions for quality online content. I’m waiting for the sliding scale put money in the pot apps to get a serious grip. They’ll never make as much money as $5 a head per week. But they also won’t limit viral adoption.

  9. Tim,

    Your analogy actually highlights Murdoch’s difficulty in grasping the economics of content on the internet. Buying sports rights like Premiership Football and building a satellite television service are a high-barrier to entry, capital intensive plays that trend toward natural monopoly. Sky was the kind of winner take all, sharp elbows business that Murdoch has excelled at. Much the same with Premiership Football. The rights for it allow only a few very well capitalised businesses to play in that space.

    Let’s look at content online. It’s not exactly scarce, to which journalists (I’m one of them) and media execs say, “Yes, but there is a scarcity of quality content online.” The only people who believe that are some journalists and most media execs I’ve spoken to. The internet is the most efficient content distribution mechanism ever created. Scarcity isn’t the problem. Abundance is. As Clay Shirky says:

    Abundance breaks more things than scarcity does. Society knows how to react to scarcity.

    Murdoch, and to be fair, most media execs are grappling with how to deal with abundance and a competitive landscape unlike anything he has ever seen. Barriers to entry in terms of digital content creation are much lower. It’s not a winner take all game like satellite TV or footie rights. The kind of natural monopolies that have created Murdoch’s empire and driven his thinking and strategy don’t work in the same way in this very complicated digital space, and if you look at MySpace, Murdoch doesn’t really grasp the rate of change in the digital space. It’s not enough to buy a market leader and assume it will remain as such.

    If you look at the strategy at the Times and a lot of other Murdoch’s statements, he’s trying to re-create content scarcity. Yes, there will still be opportunities for winner-take-all plays like sports rights, but that has never really been a problem in terms of digital disruption. Premiership football is still scarce.

    It’s the other content that isn’t such as general news and opinion that are abundant and possibly overly so. It’s going to be very, very difficult to build a business solely on trying to make money from that content. News businesses have always paid the bulk of their bills with advertising. Charging for content usually paid the cost of print, paper and distribution and not much more.

    We’re going to continue to see pressures on content businesses until media executives get serious about the economics of the business they’re in, not the business they were in.

  10. I wish Paypal (or someone) would hurry up with net-wide micropayments (both voluntary and compulsory) using the hack Apple have for iTMS to avoid excessive credit card fees.

    I also wish that they (or Amazon, or someone) would do a “request and/or pay for a cultural work” system that works at credibly building buzz and building communities with open wallets as well as open minds.

    The part of the iPad equation that I think makes sense is having a standard format to aim for. Could W3C declare ideal formats for web content presentation as an alternative?

  11. Clay and Rob,

    In terms of payment, Suw and I are trying something called Kachingle here on charman-anderson.com. It’s a flat-fee, post-consumption micro-payment system. What’s dat? Ok, as a Kachingle user, you pay a flat fee per month. Pricing predictability, knowing how much you’re going to pay a month, is one driver for consumer uptake. When you visit a Kachingle site and you like what you’ve read, you click the Kachingle icon (you’ll see it in the upper right hand column under Support Us). That’s what I mean by post-consumption. You’re paying for something you like, not paying a micro-payment with the hope that you’ll like what’s after the summary. As a user, Kachingle then divides your monthly fee by the number of articles you’ve chosen to support that month. As a content creator, you get a little bit of money from people who want to support your content. (There is another system much like it called Flattr that has recently launched here in Europe.)

    In terms of W3C standards, HTML5 is the W3C standard. There is varying levels of support for HTML5 in Safari, Firefox and Chrome. (They all support the basic presentational elements but some don’t support geo-location, for instance.) Thanks for you comments.

  12. “Suw and I talk often that” should be “Sue and I say often that.”

    Other than that, kudos – this is one of the iPad posts I’ve seen that has been coherent and rational. I think you went a bit overboard, though; I think it’s a safe bet that the NYT and WSJ iPad apps have a better chance of turning a profit than their web sites. I agree that they’re overcharged, but any Apple customer is by definition thrilled to pay extra for good taste, and that’s what these apps provide. It’s also what the geek side of the debate always seems to overlook in my opinion – to many people, $17 a month is close enough to free to make no difference. Those people don’t care about small change, but they do care about getting only the best information, and those people are the WSJ’s customers. Less true for the NYT but still relevant.

    To reiterate, people are used to getting stuff for free on the Web; Apple customers love paying extra for good taste. This means you have a better chance of charging for content on the iPad than you do on the Web, and that iPad apps are a market segmentation dream.

  13. Actually Giles, I hate to be a pedant but my name is actually spelt with a W not an E. 😀

  14. Giles,

    First off, I’d quote Josh Benton of Harvard’s Nieman Lab from a panel we were on a few weeks ago in Paris and comments he’s been making about devices like the Kindle and the iPad for a while:

    But in the news world, do people read more news because of the Kindle? Are people more likely to pay for news because it comes on a Kindle? I think the answer is no. I think the Kindle is a market segmenter [not a market creator]….

    It’s important to remember that market segmentation is not market creation. As Josh adds, while there is overlap between people who are willing to buy a Kindle or iPad and people who are willing to pay for content, “…what we’re forgetting is that’s a very small portion of the really big circle of people who have no interest in ever paying for news”.

    I’ll cede that news content is also different than other types of content. However, I think that Josh’s point that market segmentation is not the same as market creation, and all of the examples I wrote about are news services.

    Now, you’ll say that businesses find opportunities to exploit market segmentation and charge premium prices, yes, I’ll agree with you on that. However, I still don’t believe that we’ve a sense of how much of a market the iPad is going to create for digital content running not only at a premium to print but also to current digital+print prices at the Wall Street Journal. The iPad app monthly price is still more than a print+web sub at $2.69 a week. If I buy the print Journal, plus have a 3G iPad and a monthly 3G AT&T sub, then it starts to make more sense. (A monthly AT&T ‘unlimited 3G sub is $29.99.) However, I still don’t think it makes that much economic sense.

    Now, people who buy Apple computers definitely have shown that they will pay premium prices for what they feel is premium design and a premium computing experience. (Suw and I each own a MacBook.) The market has plenty of data on iTunes for both music and video, and honestly, if anything it shows the pressures that content companies face as content becomes digital. (It’s one of the reasons that the music industry worked with Apple to create Cocktail, which the industry hopes will be a new premium-priced album for the digital age.) But I think it’s a stretch to assume that iPad owners are going to pay through premium prices for new products that are not premium, and which don’t add any more value than a normal web or print subscription. At the moment, a lot of new iPad buyers are saying the killer app on the iPad is the Safari web browser. It’s not enough just to repackage content for the iPad, however shiny the app, there has to be real innovation and real value before people will fork over their hard-earned money.

  15. Kevin, Suw thanks for getting this debate started. As a B2B marketer I am used to ‘experimenting’ and trying different approaches to segments of the market. The Economist releases some content to readers vis Twitter free that is normally behind the subscription firewall. I think they could extend this by allowing subscribers to share with friends possibly in exchange for kerching-type micro payments or use rights on friends emails for advertising subscriptions.
    There are many avenues to be tried. Some may work some of the time.

  16. There needs to be a system set up where it’s easy (and affordable) to tip your content providers. Micropayments like Rob Myers mentioned perhaps.

    “That was a well written, and insightful article… have a Loonie and a quarter”

  17. So you complain that why would you but an app when you can hit up the web site and read the content online?

    I think its clear thats going to end. IMHO what is happening is an alignment. First the pay apps and then slowly you’ll see walls going up around the web sites.

    Thats just my personal a opinion.

    Enjoy the cheaper/free web site for now, it won’t last.

  18. Interesting analysis but only targeted to newspapers (Or what remains of them) and NPR.
    I am of the group believing that the iPad has more future as a video players (And enhancer for those who can use it that way) than as a text, (Enhanced or not), reader.
    Would you say the same thing for the TV, new Media and videogames apps and business models?
    Waiting with interest your possible reply!

  19. Well I’m not following the iPad thing so closely, this is the first I’ve heard of the prices.. I guess I disagree in that I think companies can charge more for iPad app versions of there content then web sites versions… but thats only if there’s some kind of a value add somewhere.. Still I don’t know that you could charge anywhere near as much as for the print versions… unless we are talking a really content rich experience.. lots of video, true interactivity, blah blah blah.. and it sounds like we don’t have that here?

    I suppose it’s easier to lower prices going forward then trying to raise them.. and I suppose the new iPad is a decent enough excuse, as excuses go.. if they take this as an opportunity to really focus on how people consume content, and how they could leverage the iPad platform to improve it, I think they could eventually find a there there.

  20. Great post and totally agree – it’s appaling that the magazine guys would think early adopters (or anyone) would cough up significant $ for the “convenience” of an app – especially considering that you can subscribe to the paper versions of most of them (e.g. time, WSJ, New Yorker) for between $0.30 (WSJ) and $0.50 (Time Mag) per week – ridiculous! They have to get away from chasing ABC offline and trying to fleece readers online – start having consistent pricing strategies and have some fun testing prices – like the FT and Economist are doing.

  21. Great post; interesting comments. I think it’s been obvious for some time now that Rupert’s been off his meds, particularly with respect to Internet reality.

    On a broader level, I think that the iPad and similar media/Net access devices in the near future are going to mark a sort of K-T boundary event for the Old Media types who can’t or won’t adapt to the reality that scarcity doesn’t exist anymore (except in very, very specialized areas). Or, more precisely, there is no longer a barrier to entry into the information-distribution and -access “industries”, since they’ve been subsumed into the infrastructure. What IS still valuable/rare enough to be worth paying for is truly specialized information, generated by and for specialists in the field. How many general readers would be interested in textbooks on rhinoplasty, or compiler construction, or air-traffic control systems? But if you’re actually IN those areas, information you don’t already have might well be worth a lot… as it’s cost somebody else a significant investment to get the skills and resources needed to generate that information in the first place; that’s what you’re really paying for. In that context, the specifics of content – dead-tree book, PDF, Kindle or iPad work – are almost irrelevant.

  22. Surf to http://landofmags.com/ and you can buy 112 issues of Time magazine for $29 USD or 26 cents/week.

    That is, for 26 cents per week, they will deliver a printed paper copy to your house.

    So, who, in their right mind, is going to pay 20 times that amount for a digital copy delivered to your iPad?

  23. Suw,

    Please do not publicly point out pricing insanity like this. Please let these publishers set their ridiculous price points so they die faster.

    Thank you,

    Charles Darwin

  24. Georges,

    I agree with you that there is a lot of room for innovation with not only the iPad but generally with HTML5 and the Canvas Javascript library. However, I think we’ll see the bulk of the initial interface and interaction experimentation in games not necessarily from traditional content companies. Traditional content companies have had a lot of time to experiment and haven’t really done that much. I’m also a bit sceptical that we’ll see a huge amount of innovation driven solely by the iPad. I’m not going to quite as far as Cory Doctorow and predict that content on the iPad will be CD-ROM 2.0, but the interactive innovation will come from unexpected places, not necessarily from content companies. They are focused on problems with their business models, not interface innovation.

    Another issue will be finding a workflow and developing frameworks that will allow rich interactive experiences to be built at a price point the market will support.

    In terms of business models for television and video, yes, there will be opportunities for the iPad. I think the other thing we’ll see if new dual-screen experiences. We already saw people interacting around TV via the iPhone or websites, and I think that the iPad and other media slates will lead to the development of interactivity around TV. Although we’re seeing connected TVs, development for them is fragmented and not nearly as rich of an experience as the web or even mobile.

    JW, see my comments above about Kachingle, which we use here on the site. It’s early days, and we use our blog to support our business but don’t see it as a primary revenue stream.

  25. Another very clever monetization model for content providers to use is Kachingle, which launched publicly in February and already has 110 content providers onboard. Kachingle combines the best of crowdfunding, micropayments and free access to content, to deliver a fun way for readers to support the content they love, while sharing that great content with their friends. Check it out at http://www.kachingle.com .

    Fred Dewey

  26. 1. The paywall (we used to call it a subscription but Now We Are Two (point oh)). A company is making something and giving it away free. The profit margin is therefore negative. The head of the company then decides that a profit is a requirement for the wellbeing of the company, so decides to charge. A bunch of ‘customers’ clamour that the company will go bust if he charges for his expensive-to-make product.

    2. iPad app pricing. There’s lots of different ways of setting a price. One is the ‘cost plus’ approach, which you allude to in quoting Scott Karp: “Paying $4.99 for magazine on newsstand includes cost of printing/distribution. Now you pay for iPad instead, so magazine should cost less.” This pricing method is the way accountants look at life: it costs x to make and I need to give y% to the shareholders so I set the price at z.

    In the context of the iPad, you have an opportunity to set a higher price than what you expect to sustain in the longterm. It’s much easier to reduce the price than increase it later.

    The longterm price can also be detached from the cost to deliver. The perceived value of the product is what ought to determine the price. For me, having an app on a lightweight device which doesn’t leave ink on my fingers and has multiple functionality (even if not simultaneous), is of higher value than scrabbling around for some change to go out in the rain to the newsagent to buy the paper, whose existence in my hand is testament to deforestation. OK, I got carried away there but the sense stands: there’s more value in the app than the paper so I’m prepared to pay more.

    What about the free web version? Well, I’ve never heard of Plucker and I read all the RWW, TC etc blogs. The portability argument stands because the vast majority of people don’t ever go anywhere near the tech press.

    3. Sponsorship as a business model. It isn’t a business model. Sponsored events are short-term opportunities.

    Finally, anyone who says “Murdoch for all of his brash brilliance has no understanding of the economics of digital businesses” has probably misunderstood. If he’s losing £250,000 per day on the Times, the model isn’t working and needs to change. The superabundance of online ad inventory makes it near impossible for a costly newspaper to exist free of charge. A small percentage of readers will pay and they will generate greater revenue than the current masses.

    OK, post-finally, the good news for other online media is that the reduction in pageviews of the Times – and other papers as they follow – will reduce the available ad inventory, which supply-demand economics suggests will lead to higher prices.

  27. Alex,

    You look to be launching an ad-supported internet start-up. Giving away your content for free? Are your TV listings inexpensive enough that ads alone will support it? Or will you adopt a freemium approach and deliver a basic product for free with additional paid premium services? Most of the discussion has moved away from the concept of a paywall, which is a binary, to some type of hybrid concept where free content is offered along with premium content or services that help pay the costs of the businesses.

    In terms of perceived value, are you talking about the perceived value to the customers or to the publishers? In my mind, that’s the problem we have here. Publishers, especially news publishers, have high legacy costs that they need to cover, and when they say the ‘value’ of content, they are conflating ‘value’ with the cost of production. Those aren’t necessarily the same things. If all businesses could charge for the cost of their products, no businesses would fail.

    Your last paragraph is a bit difficult to respond to. Could you explain your logic that the reduction of pageviews at the Times and other newspapers will reduce the available online ad inventory?

  28. Alex,

    PS Never heard of Plucker, try Instapaper, it’s what all the cool kids are using.

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