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Hearst to launch e-reader and disrupt the supply chain

Fortune overnight reported what could be a game changing move by the Hearst Corporation:

Against a backdrop of plummeting ad revenue for newspapers and magazines, and rising costs for paper and delivery, Hearst Corp., is getting set to launch an electronic reader that it hopes can do for periodicals what Amazon’s Kindle is doing for books.

According to industry insiders, Hearst, which publishes magazines ranging from Cosmopolitan to Esquire and newspapers including the financially imperiled San Francisco Chronicle, has developed a wireless e-reader with a large-format screen suited to the reading and advertising requirements of newspapers and magazines. The device and underlying technology, which other publishers will be allowed to adapt, is likely to debut this year.

The Amazon Kindle, selling more than 300,000 devices last year and probably many more this year thanks to Oprah’s endorsement, has changed book reading for many.  The full impact on book sales will not be felt for a couple of years yet.  The Hearst move could do the same for newspapers (maybe) and magazines (more likely).

The stories circulating are that the Hearst device will have a bigger screen and be foldable.  Both attributes would be crucial for a newspaper or magazine experience.

The device would work by downloading the latest content, to which the customer is subscribed, from the publisher.  The supply chain shrinks.  The use of paper is eliminated as well as the distribution network including retailers like newsagencies and similar businesses.

Hearst has a track record for investing in disruptive technology.  See the announcement from Eink 1998 about Hearst participating in a capital raising for the further development of eink technology.  They remain an investor today.

There is considerable coverage of this move by Hearst including the predictable: Can Hearst save newspapers with an e-reader? at PC World.  More than 500 blog posts have been published on this in the last 24 hours.

I have been talking about this type of technology for years and see the move by Hearst as inevitable.  My concern is that newsagents are not engaged in discussion about this.  Indeed, they either do not believe that their model will be disrupted by technology or that existing suppliers will involve them somehow in a new model.

New technology will impact sales of magazines and newspapers.  It is already but today’s economic climate is masking the true impact.  I would like to see on-going thoughtful (politics free) discussion about this issue among newsagents. While there has been some here over the years and at workshops I have run, there has been little truly useful engagement.

The coverage overnight about the move by Hearst is significant for Australian newsagents.  It will be interesting to see if newsagents agree.

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  1. Brett

    It is almost inevitable that this, or similar, will happen very soon. I’m not sure the technology is right just yet but it is certainly getting that way. Magazines and Newspapers will not look like they do now in as little as 5 years. Some agents have already taken steps with respects to newspapers and have reduced their exposure to the loss of that product. What we lack still is the foot traffic that newspapers create but that too is changing with e-products becoming increasingly popular in agencies. Magazines will be a wrench when they too start to drop off in popularity and as you rightly point out Mark, we need to be engaged in this – even if its to the extent of what we replace them with. We live in interesting times.

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  2. Sunny

    Recently, I visited 2 e-reader manufacturers in China. As a newsagent, I had expressed my concern over the e-readers to the sales managers of both companies and ask what roles newsagency channel can play.

    They consider we won’t be affected by near future. Newspaper publishers are looking it as a cost saving measure at this moment, and the retail channel will be effected only if a viable on-line model is innovated.

    They suggest us to work with a hugh on-line content provider, as they are actively seek cooperation with these type of content providers in China and all over the world.

    I think that as many magazines are closed, newsagents can group and purchase the e-reader rights over those failed and those existing and distribute them via e-reader recharge.

    That may need to be joint effect with newsagent software providers, existing magazine distributors, and all marketing /buyer groups.

    Cheers,

    Sunny

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  3. Jarryd Moore

    I still see e-readers (at least for newsapers and magazines) as a dabbling, fringe concept. I don’t see them gaining traction with the majority of consumers.

    These stand-alone type of technology is only going to fill a temporary market created by the shrinking demand for print, where some will still not embrace the whole internet experience. For the majority of the market I see the development of devices like the pda-phones currently influxing the marketplace as the more likely future. Part of the reason people are moving away from print is because it isn’t convenient. Having multple devices doesn’t make reading news more convenient. Could you imagine carrying around a mobile, GPS navigator, calculator, camera, pda and an e-reader?

    And if pubishers think they will be able to freely charge subscription fees like they have in the past they ought to get their heads out of the sand. Generation Y and Z (and the internet savvy Gen X) all expect news to be free.

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  4. Derek

    Jarryd

    They may expect news to be free however I have just read that they the newspapers online business are trying to come up with a way to charge a very small amount for each link you select. See this weeks Time Magazine.

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  5. Derek

    Maybe it was the Economist–sorry

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  6. Mark

    The e-readers do appeal to a different market but there is cross-over with the traditional print consumer. Certainly that appears to be the case with books.

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  7. Jarryd Moore

    Derek,

    Don’t stock the economist (doesn’t meet KPI). Had a look on their website but can’t find the article you reference.

    They can try and come up with as many ways as they like. As soon as they charge for news people will shun them. Especially when it is likely they can get the same or a similar article from 10 other sites for free.

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  8. Jarryd Moore

    Mark,

    Definitely a cross over with the traditionalist print consumer. Those who traditionally like print will likely prefer to migrate to some form of e-reader (as the print model continues towards becomming unviable). The problem lies in the numbers. The technology would need a large number of publishers (or at the very least a majority of the major publishers) to embrace the technology. To make both content production viable and the price of the technology accessible there will need to be a significant segment of the marketplace that adopts the medium. Im not sure that level of uptake can be achieved.

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  9. theo

    Jarryd you make a good point about the uptake by consumers for ebooks and maybe emags, according to recent Q4 results from Amazon the sale of the Kindle has gone up and they can’t keep up with shipping of the product(kindle 1 and Kindle2). BUT BUT they haven’t released the volume of e-books sold why cause people (stupid as this sounds) are baulking at the purchase price of the e-books from Amazon.
    they state one price and then add on fees.
    Also Amazon the maker of Kindle is in a bind because sale of e-books hurt it’s book business sales which is more profitable.
    I can supply the link to the article when i know how to guys.
    Cheers

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  10. BAZ

    As a customer recently pointed out that while reading the news/articles on line he was required to watch an ad first…last time he will do that. Sure as eggs the new tech will probably follow suit. Don’t have to do that with a Newspaper….skip or read !! Interesting times…..

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  11. Derek

    Jarryd

    That article should be in the Time Magazine you took of the shelf this morning if you did not sell out. I found it insightful.

    Derek

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  12. Jarryd Moore

    Sorry Derek,

    No Time Magazine. Doesn’t meet KPI either.

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  13. Brett

    New thread perhaps (Mark?)

    Jarryd says no Time Magazine because it does not meet KPI. Fair enough, he runs a supermarket. When does a newsagent cut an iconic title such as Time? When it does not sell? Should some title be on the shelves just because it IS iconic and without it the range is less than complete? My Time’s do not sell and yet I keep them on the shelves because, and only because, as a magazine specialist (as most newsagents should be), I should provide that option for that one customer every x months who might buy it. It fills one pocket.

    I guess the question is – when is enough enough? Do all magazines live in our shops purely on sales or do we all have a title or three that we keep just because we feel we should.

    Perhaps a new thread. I’d be keen to hear what you all think about this one.

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  14. Derek

    I wish I could get rid of Networks Investment magazine with the same indicators, it just keeps on coming whether I delete it or not, then pops up the economist which is in my opinion a fantastic magazine.

    Would be an interesting discussion thread Brett.

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  15. Jarryd Moore

    Brett,

    I think Time magazine can only be called iconic if people actually buy it. To my customers, it clearly isn’t an iconic title. If the demand for a title isn’t there, why stock it?

    Newsagents can be magazine specialists without stocking every title. To keep titles that don’t sell is inefficient and unprofitable. Why would one consciously choose to make a loss?

    The supermarket section of our business does not reflect on our magazine management. I would manage the category purely based on data regardless of the of the store it was in.

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  16. Jarryd Moore

    Baz,

    ‘Forced’ advertising is most common in video clips and those that precede text based articles usually have a ‘skip’ button.

    Nonetheless the vast majority of news sites don’t use forced advertising, simply because consumers respond negatively or refuse to wait for the ad and leave the site.

    Maybe your customer was not internet savvy?

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  17. Brett

    Why would I deliberately make a loss? Jarryd, you base your decisions on numbers and dollars and cents. Well done. I also use these. I also however use other tools to lure a customer and retain them, things like feel and tone. You get these by having stuff that does not in itself make money but it may.

    To infer that a title is iconic because it sells lots is insulting to the generations of journos (and we had this disagreement last time we talked about optimising a web site) who wrote incredibly boring articles that were read by very few people, but that were stunningly important. Time has that record. Thus it is iconic.

    How will you deal with the customer that wants that next great article? More importantly will that customer come back when he is told that it didn’t make KPI?

    This is why we should have this discussion. Perhaps we can find that balance that Mark is on about all the time, perhaps we can ask for the model to change for titles such as these that are important (IMHO) but don’t make the KPI. Perhaps we can stock them and pay for sold copies only. Perhaps if we get this thin end of the wedge in other important reforms might follow.

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  18. Jarryd Moore

    Brett,

    Time magazine was iconic. As a modern-historical reference it still is. But as a current day title it isn’t (at least in Australia).

    We turn plenty of customers away because of titles we don’t stock. We always offer to special order. Some customers take this option, some don’t. No one can stock every title and no one should try.

    Feel and tone is great – it’s essential and lacking in most newsagencies. But we are talking about a few small titles that have no real ‘presence’ in store. They play little to no role in the store environment and subsequently don’t really contribute to feel or tone.

    We shouldn’t be bringing our feelings about each title into the equation. We need to be objective.

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  19. Mark

    The argument for Time is strong if it makes a statement about your business which is appropriate to your demographic. This is where a pure financial KPI is not enough of a measure. The challenge is that the current magazine supply arrangements do not afford us the opportunity for such consideration.

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  20. Jarryd Moore

    Mark,

    One could likely assume that if Time was able to make a statement to a demographic then it would also meet a KPI in that newsagency.

    The measure of a title’s ability to make a statement and its ability to meet a KPI are closely related.

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  21. Brett

    The more I think about this the more I feel we should grasp the opportunity to stock Time. If I stock only those that sell to a strict KPI I would have not much more than Woolies. I have x pockets and I fill them. I took away 200 pockets last year, I took away a whole bunch of nothing magazines, not one had a saving grace much less a sale. I don’t miss them and neither do the customers.

    However, I still stock Time and National Geographic and some others that speak not directly to my customers needs but to a larger audience perhaps and it says this. I am a newsagent, a specialist in magazines and so I stock those that have profile and have a message. For example, Derek was right, that was a good article in Time and you missed it.

    Also it says to my customers that I am different to the supermarket and it also says that I am a member of a group that sells more magazines than any other group. These are all subliminal messages and I cannot cost them directly but my gut tells me that it is working as my magazines sales are up. I still don’t sell many Time but I think that I will keep them just the same.

    I will also approach my state organisation (who I am pleased to say appears happy to talk to agents and progress their issues as best they can) to see if we can’t talk all concerned into a least a trial.

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  22. Jarryd Moore

    Brett,

    We stick to a strick KPI of 3 units per month (28 days). When we done our shopfit we based the number of pockets we needed on this KPI (although the caluclations were admittadly a bit rough at the time). We cut our magazine range by some 50% (this is the conservative figure) to a range of between 400-450 titles. We continue to acheive double digit growth in the category. But what I consider one of the pillirs of our magazine magagement systems is their efficiency. Setting strick KPIs has allowed us to free up time we would have spent managing unprofitable titles. It has also allowed us to free up further space to sell more profitable product (notably cards, gift packing and giftware).

    Im not sure why it matter if Time had a good article? I am sure there are plenty of magazines that netheir of us stock that have articles we would both consider good. That doesn’t make the title a profitable one.

    Time has a profile to you, but if hardly any of your customers purchase it, I doubt very much that it speaks to them subliminaly or otherwise. I cannot stress enough how important it is to be objective.

    In your eyes Time has a message. But in you customers eyes it doesn’t. If they thought it did, one would reason that they would purchase it.

    I love The Economist. I personally think it has incredibly insigntful articles and important messages. But it doesn’t sell. It doesn’t speak to my customers. So I have no reason to sell it.

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  23. Jarryd Moore

    I do apologise for the myriad of typing errors in my last comment. I usually type then go back and do a spell-check, but alas I forgot to 🙁

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  24. Derek

    Jarryd

    Please take a deep breath, objective with debating is great, however do you realise you are sometimes oppressive when you debate your point?

    How could a simple referal to an article end up with this?

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  25. Jarryd Moore

    Derek,

    I have a point and I debate it. I am often very direct.

    No need for me to take a deep breath. I am not angry or frustrated. I am actually glad Brett has engaged in a strong debate. This is certainly an issue that deserves being discussed to the fullest.

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