Flipboard: Partner Channel or Content Vampire?

Jun 29, 2012

Article ImageThere is no doubt that the folks over at Flipboard have created a great product and business model for themselves and their investors. It's really almost as simple as the Google model. Create a technology that grabs "other people's content" and assemble it in a new way that the consumer desires and then monetize the heck out of it. Do all of this in the name of a noble mission to truly help provide the content providers with a new way to drive sales and profits and give consumers/readers what they want. This is magical from a P&L standpoint because companies like Google and Flipboard have no content or editorial costs in their business model. Use third party free content and make huge money in the assembly and showcasing of this content.

The paid search business has shown all of us that advertisers are willing to outbid each other for premium and targeted intersections between consumers and content. Why shouldn't the same be true with Flipboard in the publishing sector?

After spending the bulk of my career in print publishing, I thought I understood the fundamentals of a successful magazine: Understand the need that readers have for content, assemble the most relevant and credible content available in the marketplace and then deliver this high quality package of editorial to your readers. Success, though, was never exclusively tied to the ability to grow engagement and circulation with readers. What has always paid the bills has been advertising revenue.

In order to be a success and pay for the editorial, franchise, and production costs of a publication, a publisher had to sell advertisers on the proposition that the readers-their prospective customers- were engaged, not only with the publication, but were responsive to the advertising that made up the folio of these publications. The profile of a successful magazine was the belief that readers were spending time going through each and every page of each issue and were exposed to great editorial and great advertising. It was the full package that the advertiser believed in and with that belief supported publications with their ad dollars that reached the target audience.

Flipboard proposes to change that model dramatically. It offers readers the ability to edit & produce their own magazines. It also provides the ability to select the content that they deem appropriate and relevant to their needs. Like other legacy publishers, Flipboard's business model is based on the premise that advertisers will pay premium rates for targeted ads with consumers that are engaging with content that they have selected. It seems like the team at Wired and The New Yorker have figured out the tragic flaw in providing content to a Flipboard audience.

The problem is that every Flipboard consumer/editor who aggregates Wired or New Yorker content into their own Flipboard magazine is one less reader that can be monetized within the Conde Nast environment. While Flipboard may be offering "equitable" revenue share agreements with publishers, they are still taking dollars away from a publisher that could have generated full value within the publisher's apps, website etc. In effect, publishers are saying "we can't sell the digital connection between our content and our readers with our own salespeople, go sell it for us."

Some rationalize the relationship with Flipboard as a new way to drive incremental circulation for their digital products and then link over to the main site and sign up for a full subscription. Only the analytics folks know if this is happening. It's not in the vested interest of Flipboard for this to be the case. I doubt there is any substantial success here.

Hats off to Wired and The New Yorker for taking back the brands!

A cleaner strategy seems to be developing between the New York Times and Flipboard. While the Times are providing full content to Flipboard, permission to view and aggregate full content is only being provided to the Times' paid subscribers. From a business standpoint, the Times understands that it has already generated 100% of the circulation revenue and ad revenue opportunities that it can generate from the subscriber through its own core network of print and digital products. The Flipboard offering is a "channel" partner that provides them with a new incremental revenue stream that doesn't put the core offering at risk. Of course, we will need to watch rate bases on both print and online products over time to see if this move to Flipboard results in declines.

There is little doubt that publishers are desperate for new ways to increase revenue. I can understand why partnering with Flipboard might look appealing in the near term, but as Wired and The New Yorker have realized, you may be giving away a heck of a lot more than you are gaining.