iPad Economics – How Charging Subscribers a Single Penny Could Cost Magazine Industry Up to $1.8B
In my previous post, I argued that the iPad is a game changing technology for mainstream media businesses, especially magazines. Why am I so confident? The answer is the power of FREE.
Chris Anderson, in his excellent book Free: The Future of a Radical Price, points out that when consumers are asked to pay any price for a product – even a penny – they hesitate and evaluate their decision. But FREE eliminates the psychological inhibitions that cause them to hesitate and dramatically increases demand. In short, moving from a price of one penny to a price of FREE increases demand far more than reducing the price of a product from ten cents to nine cents (or any other comparable one penny decrease). Josh Kopelman of First Round Capital calls this phenomenon “The Penny Gap” and it is most definitely real. Chris Anderson further points out that FREE is almost inevitable in any market in which the incremental cost of delivering one additional product approaches zero. And that is what the iPad really unlocks for the publishing industry – the incremental fulfillment cost of each additional subscription approaches $0.00.
So let’s assume that most magazine publishers realize this and decide not to charge for their publications on the iPad. In this case, I believe real demand would be unlocked and the incremental revenues to the industry would be between $927 million and $1.8 billion. This would be meaningful for the magazine publishing industry, increasing revenues between 8% and 16% in the first two years of the life of the iPad. And if this device achieves penetration rates that even approach those of the iPod (and who wants to bet against Apple?), this revenue stream will increase dramatically. This is a game changer.
19 April 2010 By Admin
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