Publishers Still Trying To Unlock iPad's Promise - MediaPost Publications

The iPad continues to frustrate magazine publishers who counted on the Apple tablet as a digital lifeline for their ailing traditional businesses. A key sticking point has been Apple's reluctance to allow publishers like Hearst and Conde Nast charge for subscriptions for iPad editions of their titles, as they do offline.

  A New York Times story today highlights that publishers feel having to charge on an individual basis (typically at the same cost as a print copy) is holding back their progress in attracting readers to the iPad. Only a select few publications, such as The Economist and News Corp.'s soon-to-launch iPad-only newspaper, The Daily, are able to sell their apps on a subscription basis.

 Underscoring the unwillingness to plunk down $5 for a magazine issue in the App Store, a new study by research firm Knowledge Networks appearing in Ad Age found 86% of iPad owners said they would be willing to accept ads to access free content such as TV shows and magazine or newspaper articles. Only 13% said they were willing to pay any fee for iPad content, and only an extra $2.60 on average.

 The findings jibe with those from a Nielsen survey last fall indicating that nearly 60% of users across the iPad, iPhone and all other connected devices said they were "OK with advertising if it means I can access content for free."

 Further, 39% of iPad magazine readers in the Nielsen study said the ads they see are "new and interesting" (compared to 19% of all connected device owners), while 46% say they like ads with interactive features (compared to 27% of all connected device owners). In these kind of surveys, online users generally prefer free (ad-supported) content to having to pay, and ad-free content to having to see advertising. Wikipedia is nirvana in this regard, but most large sites and costly-to-build apps aren't supported by donations.

 Publishers, naturally, would like to generate revenue from both advertising and paid content via the iPad as they do offline. But not being able to charge annual subscriptions on the Apple tablet as they do in print interferes with their ability to calibrate the pricing and combination of ad-supported and paid material within magazine apps.

 That's why publishers are looking beyond the iPad to competing Android devices and other tablets coming on the market this year for more flexibility in setting terms. The increased competition could also put more pressure on Apple to support app subscriptions more widely. One potential bright spot in the Knowledge Networks study is that 14% of iPad users are willing to pay for a special iPad edition of a magazine they already receive in print.

 That means there's extra money to be made from packaging or repackaging narrowly tailored content via apps with a portion of existing subscribers. Whether that would be worth the cost of creating and distributing the app is another question. But given the experimentation going on among publishers in the digital realm, upselling to an app is an option worth exploring.

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The iPad: A Dubious Bet For Publishers

The Apple iPad is a major and misunderstood strategy departure for today's most talked-about tech firm. With both the iPod and the iPhone, Apple launched products with value that was high on a standalone basis. External partners clamored to join the party once it got going, but their support was not needed to get the party started. In contrast, the iPad depends critically on buy-in and participation from other businesses for its success. But it's not at all clear that these partners really understand the game they've signed on for.

Apple ( AAPL - news - people ) and Steve Jobs are famous for their standoffish relationships with partners. Whereas Microsoft ( MSFT - news - people ), for example, has a strategy built explicitly around persuading other firms to build on its platform, Apple has historically followed a strategy of standalone value creation--a closed biosphere rather than an open ecosystem.

This obsession with control and integration is often blamed for Apple's defeat in the PC wars. Yet in their admiration of the glory of Apple's resurrection, many observers have overlooked the fact that success in music and telephony this time around has been rooted in the same closed strategy.

It is not Apple that changed its strategy to fit the world; rather, the world changed to fit Apple. More specifically, Apple started pursuing opportunities that required far fewer elements to be combined to create value. Success in the PC world required mastery of too many elements (computers, peripherals, applications, development tools, etc.) targeting too many distinct segments and uses (home, education, business, government, etc.) for any one firm to deliver a complete solution. There, the open platform dominates.

In contrast, success in digital music players required bringing together far fewer elements--the player (iPod), the management software (iTunes) and the music files. And the music files were already widely available, thanks to Napster ( NAPS - news - people ) and Co. (recall that the iTunes Store didn't take off until after the iPod was already a blockbuster success). Here the perfect package wins.

Similarly, to make the iPhone work, the only partners required (outside the highly controlled package that Apple was in charge of) were the telephone operators. And even the operators were willing to play by Apple's strict rules. Recall that early attempts at third-party applications were forcefully rebuffed by Apple, which used successive software updates to disable phones running unauthorized software, turning them into iBricks. Indeed the much-celebrated App Store was more of a reactive concession by Apple to external developers than a proactive strategic move.

In contrast the iPad is fundamentally an enabler of other parties' content. It is no accident that the marketing message has leaned so heavily on the device as reinvigorating newspaper, magazine and e-book publishing. And indeed publishers have flocked to the iPad, creating custom versions of their wares to create and exploit the incredible experience that is possible on the iPad. Thus Time, Wired and Popular Mechanics have all invested in creating truly exceptional offers uniquely for the iPad environment, while traditional book publishers have risked upending their relationship with their biggest distributor, Amazon.com ( AMZN - news - people ).

Seduced by Steve Jobs' siren song that he wants to protect the publishing industry, willfully ignorant of the effect of the 99-cents-per-song model on the music publishing industry, and mesmerized by the unit sales figures for iPods and iPhones, publishers have signed up in droves to create unique iPad offerings. They think the iPad offers them a lifeline, not realizing it is their content that is critical for iPad's success.

So the cash-strapped publishers dig deep into their pockets to invest substantial sums in reengineering their product, adding in-depth videos, interactive graphics, audio interviews and myriad other features that are available only to those readers who can access this premium content (at premium prices) using the iPad.

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