With Aggregation Becoming Big Business, Some Publishers Are Playing Along…For Now

Tech startups big and small are fighting for dominance in a new market offering personalized, curated or DIY magazines that aggregate what can be an overwhelming roar of online news content into something more manageable and meaningful. Judging from the popularity of apps like Flipboard, they have a captive audience.

Yet there are still some wrinkles to iron out. The equation seems simple: readers want content, aggregators want to package that content in ways that make sense, and publishers want to get paid for the content they produce. The challenge is finding enough money to please everyone in the news aggregation pie.

Early on, legacy media wanted to cut aggregators out of the food chain. More recently, Germany even went so far as to try and legislate them out. Publishers are becoming more open to taking chances with aggregators distributing their content, but this trend will only continue if the fast-evolving business models take shape in a way that keeps legacy media feeling whole.

Disruptive Frenemies

Recently, the response of publishers toward aggregators is more likely to be characterized by acquisitions than lawsuits. Zite, one of the earliest aggregator apps to try and offer a customized magazine experience in 2009, at first saw cease-and-desist letters and lawsuits from publishers, but less than a year later CNN brought it in-house for $20 million. CNN is owned by Time Inc., which was one of the companies that sent a letter.

The aggregator app Pulse was bought by LinkedIn last month for $90 million in stocks and cash. In March Yahoo! acquired the “CliffsNotes for news” app Summly from a 17-year-old programmer for a reported $30 million, and in April it released an iPhone app using the underlying software.

Various new and legacy media publishers have also turned to partnerships with aggregators. Zite launched a publisher partnership program that featured “best of” content in 2012 and added Chicago Tribune, Los Angeles Times, and others to its list of partners three months later. Flipboard, the still independent aggregator juggernaut that boasts $60 million in investment capital, struck an agreement last year with The New York Times to allow users with a paywall subscription to access the newspaper’s digital content through the app. However, Flipboard has also seen Wired and The New Yorker pull their content back. The company is seeing other partnerships with publishers since the launch of Flipboard 2.0, which allows users to curate and publish their own custom magazines. Among those user-generated magazines are mini-magazines put out by the likes of The Guardian, Rolling Stone and Vanity Fair.

But partnerships don’t necessarily mean a happily monetized relationship — at least not yet. The question keeping many publishers up at night is whether these partnerships will prove profitable. There is something of a culture clash between tech startups — built on investment capital — and publishers — which have immediate deadlines to meet — over how long a view these kinds of ventures can take to turn a profit. In the case of Flipboard — which has backing from some alumni of Facebook and Twitter, companies that spent years building a brand and audience before cashing in — that timeline was evident when The New Yorker and Wired pulled back.

“We really and truly in our hearts believe that there’s an opportunity for them to make a lot of money,” a Flipboard spokesperson told Ad Age after the announcement. “Can we prove that in six months? No. It’s going to take some time.”

Scarcity

New revenue is only meaningful if it doesn’t cut old revenue streams too deeply. If readers can get online content for cheaper or, in some cases, for free, then there’s little motivation to continue paying for print subscriptions.

Next Issue isn’t an aggregator in the same sense as Pulse, Zite or Flipboard, but it is an example of how legacy content can be repackaged and sold successfully on smartphones and tablets without threatening publishers’ bread and butter. Next Issue Media is a joint venture between the five largest magazine publishers — Condé Nast, Hearst, Time Inc., News Corp and Meredith. It aims to be a Hulu or Netflix for magazines.

Subscribers pay either $9.99 or $14.99 a month for unlimited access to 80 titles. The latter price includes access to weekly publications like The New Yorker or Sports Illustrated. Users can also order single title subscriptions or buy individual issues at below-newsstand prices. Revenue share between titles is based on user engagement and the time users spend with certain magazines.

The effort is notable because the publishers that stood to be disrupted opted to join forces to head off the potential threat of a third-party app. Hypothetically, offering publishers’ content up at what could be a discount for some subscribers could lead to readers abandoning ship wholesale from their printed monthly magazines, but CEO Morgan Guenther said the app is reaching a previously untapped market. Next Issue Media compared a list of its customer names for a sample of digital titles against subscribers for those titles in print and found that 84 percent were new to the title. There was only a 3 percent crossover between Next Issue subscribers to a magazine title and that title’s active print subscription list. The remaining 13 percent of the list had once subscribed in print but let it expire. Sixty percent of the customer list for Next Issue in the comparison didn’t show up on the print database at all — meaning they had never subscribed to any of the titles put out by that publisher.

“Amazingly, the majority of those buying digital magazines are new to our brands,” said Perry Solomon, VP of business development for Time Inc., at a panel discussion at the 2012 SXSW tech conference.

Next Issue’s Guenther, a former TiVo executive, has said the model is built around increasing the total available revenue for the magazine industry. Unlimited access means some users could lower their annual magazine subscription costs by switching, but on average the industry would see far more revenue if that became a trend.

“For the industry as a whole, the average amount of money spent (each year) on magazines by a U.S. household is $49,” Guenther said. “This increases the spend rate to $120, $180. So you have a much, much bigger pie.”

And that increase would be even more significant if that U.S. household has two iPads with two subscriptions.

Monetizing for Apps and Publishers

Aggregators are betting that some combination of better digital advertisements, subscriptions, sponsored content and e-commerce will generate enough revenue to support themselves and content producers. On the advertising side of the equation, Google Currents has a major advantage over other aggregators because Google owns DoubleClick, an advertisement-placing program that is already used by many publishers.

However, companies like Flipboard and Next Issue are all hoping that smarter and more beautiful advertising will draw higher prices than banner and box Internet ads — trading digital dimes for tablet or smartphone half dollars. Flipboard CEO Mike McCue told USA Today last year that his company wanted to do away with those ads nobody seems to pay attention to online.

“We took out those banner ads, which don’t do a good job of monetizing the content. We get rid of those tiny ads and allow the publisher to sell full-size print-style ads,” said McCue.

McCue reiterated that claim at the Disrupt conference in April, saying he wanted to bring in high-dollar brands. “If you’re Burberry or Gucci, you’re not going to run a banner ad,” McCue said. “To get brand ad dollars to move to digital, you need to create a beautiful experience.”

Meanwhile, publishers and aggregators alike are hoping Big Data will have a role to play in drawing more advertising to tablets. Last year, the Association of Magazine Media released voluntary guidelines for what data its members should provide advertisers, including total digital issues through subscription, average number of readers, number of reader sessions and the time of those sessions. The MPA got closer to ratifying and implementing standards for advertisers last month. Some magazine publishers are looking into providing more information for premium advertisers such as the time spent by readers on an ad or whether users interacted with it. In the end, the hope is to use better data tracking as well as the tablet and smartphone display for better, smarter, and more lucrative ads.

Along with advertising come opportunities for e-commerce, which apps can take a percentage of. Flipboard launched an in-magazine store with Levis called Catalog 2.0 last year. In March, the company started allowing users to shop Etsy inside the app. It’s unclear whether other aggregators will follow Flipboard’s lead of incorporating online shopping, but e-commerce could indirectly benefit publishers if it were to mean third party aggregators could afford to take a smaller share of advertising revenue.

Eventually, the dust surrounding these evolving business models will settle, and newsrooms will either embrace once uneasy partnerships or opt to go it alone. But until then, there could be some sleepless nights for the business offices of those producing content and those looking to repackage it.