Apple's New Tablet No Panacea for Publishers
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Publishers have high hopes that Apple's highly anticipated tablet computer will attract new readers and boost revenue, but few expect that it will by itself reverse the fortunes of a beleaguered industry.
Investors and analysts are cautiously optimistic about the prospects for publishers like Time Warner, Conde Nast, the New York Times and News Corp's HarperCollins.
But they warn the device -- launching Wednesday -- is only part of the solution to the flight of readers to cheaper content on the Web. Publishers are crafting an overall strategy that includes smartphones and other mobile devices.
"It's not a silver bullet, it's a bronze bullet, and you're going to need a big M-16 full of them," said analyst Mike Vorhaus, president of Magid Advisors.
He estimated that the tablet could drive a 10 percent to 20 percent increase in publishers' digital revenue.
Apple (NASDAQ: AAPL) has revealed little about the Tablet, which is expected to resemble a large iPhone with a 10-inch touchscreen and bridge the gap between smartphones and laptops.
The tablet places Apple squarely in a digital publishing market pioneered by Amazon's Kindle e-reader, but analysts say the device could carry a price tag of up to $1,000, which could limit its sales and thus its impact.
But it will likely go beyond the Kindle by offering color and video, potentially reshaping publishing the way the iPod changed music, analysts say.
Publishing companies are very aware of the damage Apple's online iTunes store did to record labels, by setting pricing and allowing consumers to individually buy almost any song they wished, which destroyed album sales.
Anticipating the tablet, Time Warner, News Corp, Conde Nast, Meredith and Hearst in December announced plans for a digital storefront nicknamed "Hulu for Magazines," to pool electronic edition sales of their titles.
"Publishers are really keen to gain greater control of pricing and supply of content than the music labels have over the legacy iTunes store," Ben Stretch, senior analyst with Macquarie Capital, said on a conference call this week.
Higher ad rates?
Stretch singled out Time Warner and News Corp as potentially benefiting from the tablet, saying their print assets have "basically been carried at nil" valuation, so their stock could see an upswing from any revenue from the device.
Research firm MediaIdeas forecast this week the U.S. magazine industry will shrink to $30 billion in 2014 from $39 billion in 2009. Devices like the tablet could drive growth, but not until 2015, it said.
Newspaper advertising was down 20 percent last year to $37 billion and circulation is sliding 3 percent to 4 percent a year, said Ken Doctor, an analyst at Outsell.
HarperCollins is talking with Apple to make books available for the tablet, said a person familiar with the situation, and is reportedly looking to set prices for its e-books with Apple taking a percentage of the sales.
The company declined comment, but analysts say publishers are seeking more lucrative deals than the recording industry, which groused after it let Apple get the upper hand in pricing for digital music.
But publishers are not just looking at the tablet to help them sell more copies or boost advertising. Conde Nast in December launched an iPhone application for men's magazine GQ. It sold more than 14,000 copies at $2.99 apiece in January -- still a sliver of the more than 900,000 hard copies moved.
Bob Sauerberg, group president of consumer marketing for Conde Nast, expects digital versions of its titles on the tablet may one day command higher ad rates than those of their print versions, because readers are highly engaged with mobile devices like the tablet and can make impulse buys.
"In the short term there's not a big impact, and I think it's going to take probably three years to have this scale into a real driver of profit," Sauerberg said.