Apple's Plan to Conquer the World

The Apple iPad was released over weekend, and there was tremendous publicity and no small amount of punditry on the topic.  Of course, as is only fitting for something released on Easter weekend, the Apple fans have said it’s the greatest thing ever, about to change the whole market, and no doubt going to raise the dead, heal the sick, and make the lame whole. Naturally, there are also the naysayers, a lot of whom have concentrated on how the iPad can’t possibly live up to the hype. In particular, they noted that the iPad isn’t going to save the magazine publishing industry because, as one research report put it (in all caps in the original):

Even if iPads fly off the shelves magazines will still only realize a small percent of their overall print revenue.

So let’s cut through the hype for a few minutes. Yes, I do think the iPad is a pretty terrific device. (I should have a review of my first experiences with one in the next couple of days.) It’s not something unexpected, though — it’s really the first halting steps toward the “next computer” I predicted two years ago in one of my first pieces in Pajamas Media. It will change the world of computing, maybe as much as Google did, but don’t depend on it to raise the dead or even cure your cold.

And the question of whether it will save the print magazines is, at the heart of things, asking the wrong question, because it’s being put in terms of revenue.

Let’s take a magazine as an example, say Newsweek since they’ve been talking up the iPad. Think about the business model: Someone has to write content, edit it, typeset it. Then the content is printed on glossy paper and shipped all over the world. The printing process is expensive, the paper is expensive, the shipping is expensive, and seven days later it’s all waste paper. If you look through the financial statements of publishing companies, you find that printing and shipping dominates all their other costs. In fact, I looked at the New York Times last year and found that the cost of producing the physical paper is actually about twice the cover price — they try to make up the difference with advertising revenue.

Unsuccessfully, as it happens.

What’s not obvious, though, is that financially, the tail is wagging the dog. The editorial costs, the cost of making the content, are way overwhelmed by the cost of making the big bundle of paper. So we don’t need to make up the revenue — most of the revenue was going toward something we’re not going to provide any longer.

Existing publishers are worrying about how to prevent their electronic publishing business from cannibalizing their print publishing business; they have made arrangements with e-book publishers to keep the prices high enough to at least stay close to the price of a printed book.

This is a great deal for the publishers, of course: it means their margin on an e-book is about 90 percent. But that can’t last; pretty quick someone will figure out that they can take less margin, and those great physical objects will become just for collectors, hobbyists, and fans, like vinyl records have become.

Let’s back up, and start again. First principles: the real product is content, and if you want content, somebody has to pay for producing it. There are only two known ways to pay for that content: pay for it in the purchase price or pay for it with advertising.

We happily use both of these ways in publishing now: magazines and newspapers are largely paid for by advertising, while books are largely paid for by purchasers.

If we can deliver the content without the printed paper, then the printed paper is unnecessary and will eventually go away.  So if we want publishing to survive, it has to survive without the printed paper.  We have to come up with a way to make electronic publishing pay.

The usual problem people see with electronic publishing is piracy: once the electronic form is out, how can you keep people from making free copies?  Publishers, especially music publishers, have been trying two methods: legal, with the quixotic quest by the RIAA to catch file-sharers, and technical, using digital rights management. The legal methods are unpopular, and DRM is really unpopular. So unpopular that Apple iTunes no longer uses it.

iTunes no longer uses DRM, but it still makes money. We learn something interesting from this too: people are willing to pay for content as long as it’s not too much, and it’s easy to find the content and pay for it.

Now, a picture of what publishing will look like, post-iPad and post-Kindle, begins to take shape.

First, paper print is dead, or effectively dead. Don’t even think about it, any more than vinyl records are really a major factor in music.

Second, the prices must come down, way down, below what we pay for content on paper. That doesn’t mean content has to be free, although it can be nearly free.

Third, there has to be a really convenient way to get the content.

An attractive way of getting content, low prices, easy shopping, and payment. That’s iTunes. We think about it for music, but data is data; it can be music, movies, video, or print.

While the publishing companies try to preserve their print-based models, Apple has dug the foundation out from under them. What we are really seeing is a coherent, long-term strategy to replace the traditional models of publishing, with everything delivered over the internet to inexpensive devices like the iPad.