Content and Software Publishers Have Their New Year's App Hangover

Last Updated Jan 3, 2011 2:13 PM EST

Magazine app sales are dropping, even though they were supposed to save that segment of publishing. Matthew Ingram at GigaOM said that any periodical publisher that sees apps as its content strategy is doomed.

A popular explanation for the problem is the lack of a subscription model for iOS apps. Apple (AAPL) won't give up the control. At least, publishers have hoped so. However, a likely alternative is far scarier, applies more broadly than publishing, and is just at the beginning of the pain it will bring.

People have radically changed what they expect of computers, whether delivering content or services: publishing and software. Entire industries -- news, education, entertainment, and software -- are undergoing complete disruption. And no one knows how it will settle out or what form it will take.

The slowdown in app sales has been notable, as John Koblin pointed out on WWD.com. Vanity Fair's November issue was down 17 percent from its average over the previous three months. Glamour has dropped 20 percent a month in October and November. GQ, Wired,and Men's Health have all taken an app circulation beating.

Fred Wilson of Flatiron Partners and Union Square Ventures recently observed that mobile content economics would act like those of the Web:

I don't understand why anyone would ever think that adding a presentation layer on top of web based content would make it something people would want to purchase when they are not willing to purchase the same content directly on the web.
Indeed, they won't. And yet, he doesn't go far enough. What high tech, publishing, and entertainment face is a disruption more significant than books had after Gutenberg created movable type, whether due to capability or business model. From illustrated manuscript to printed books was essentially an incremental improvement of production.

The change we see now is a combination of new capabilities, a usurpation of traditional distribution channels, and the value consumers perceive in what they get. Not only do consumers expect ever more, but they want to pay ever less. Most iOS apps would lose money if a traditional software company had created them.

Unless a company has a massive hit, through which it can amortize expenses over many companies, there is generally insufficient revenue to support the cost of creating an application. Apple's movement to distribute Mac apps through an app store will only increase the trend, as eventually Microsoft (MSFT) will feel a need to match the strategy.

Similar trends exist in the content arena. Online spending has passed that in newspapers for the first time. Procter & Gamble (PG) has greatly reduced spending on daytime television, choosing to use social media, instead. Online is where companies can find ad support, except the far-lower prices mean significantly lower revenue for content companies.

Winners have been those that could organically reduce their costs, so that a site like BoingBoing has been able to provide a significant living for a number of people. However, that amount of money is not enough to pay for traditional approaches to news, education, and entertainment. Ebooks drive down the cost of books. Video is increasingly free online.

Most executives in these industries cannot bear the pressures because the trends mean an end to business as they have known it. Revenue doesn't support large operations, and economies of scale have moved past the number of individuals and amount of capital a business has. Instead, real scale occurs at the level of the Internet's infrastructure, which is available to virtually anyone. We're moving from the primacy of the large corporation to conditions that favor individuals and small groups.

But the nature of what they do will change because they won't have the resources of old line businesses. Will garage efforts be possible? Will only authors who can fund their projects out of their own pockets be able to produce the books they imagine? Will movies have to be smaller affairs, depending on a network of individuals who will depend completely on computer effects? Will the only investigative pieces be those funded by foundations? No one knows what will happen, particularly those marching ahead, nervously grasping for whatever seems to be the latest answer.

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.