The newsonomics of Netflix and the digital shift - Ken Doctor

Ken Doctor via

The print world ends not with a bang, but with price increase after price increase.

These economics of transition have a second, big piece for publishers that Netflix doesn’t have to worry about: advertising. With advertising accounting for 70 percent of newspaper revenues worldwide, the huge question for publishers is how much ad revenue they can make from purely digital customers. In the U.S, newspaper publishers know they make more than $500 a year on a Sunday print subscriber. With reduced digital product cost (like Netflix’s reduced cost of streaming), newspaper and magazine publishers won’t need the same level of revenue, but they will need a substantial part of what they are getting today. Those economics are just being modeled now in 2011, as the promise of higher-priced and higher-value tablet (and smartphone) advertising looks like it may be real and buildable.

Magazine and newspapers aren’t yet ready to more forcibly shift the audience in the direction of digital-only.

Timing is a big question here. Reed Hastings is flipping the Netflix switch more heavily toward digital, even though fewer than half his revenues are yet there. For newspaper publishers, with no more than 20 percent of their overall revenues in digital, the time may be one to three years away.

When publishers flip that switch — pushing customers more heavily toward digital — they want the force to be with them, not against them. The news and feature businesses are different than Netflix’s. Yet the strategies involved — make the old business a division, model out the new business model, move to it as quickly as you can once you’ve got it figured out — all apply. In mid-2011, Netflix is a canary in a (circulation) coalmine, with lessons to be learned.

I bet the future is unequally distributed (as Gibson said), and we will see some — like the Guardian — adopting the Netflix one-two punch pretty quickly.