Digital magazines are struggling with the same "who will pay for the content?" question as newspapers like the NYT. It's far from clear whether Project can make full sponsorship pay the bills in the long run, but even a temporary switch from $2.99 an issue to free helps illustrate the fact that publishers are becoming even more dependent on advertisers to pay for content -- and at the worst possible time.
Even the big boys (and girls) want sponsors
IPad magazines much bigger than Project that are leaning on the sponsorship model. Just a few months ago, O: The Oprah Magazine ran an issue with only two advertisers: Disney (DIS) and Lexus. Keep in mind that O features the most recognized media icon in the world and has among the highest number of ad pages in the magazine businesses. And even it is experimenting with ways to fund its iPad edition and to get advertisers in its digital pages.
It really is a tough cycle: A magazine needs a significant readership to justify its ad prices, but less ad revenue means the magazine has charge readers more -- which, perversely, drives more readers away. It's doubtful that a smaller magazine with less branding, like Project, could have a healthy readership with lots of advertisers at its $2.99 cover price.
Second, what little money issue sales brings in has to be shared with Apple (APPL), creating a bigger incentive for publishers to work with advertisers instead. As of right now, 30 percent of all app sales go to Apple. MocoNews.net's Robert Andrews says:
Project's switch suggests there's more money in a big lucrative sponsorship than from fees from the readers it has -- and publishers don't have to give away 30 percent of their ad income to Apple (at least not yet!).
Photo courtesy of Diana Parkhouse // CC 2.0