The future of reading

(Fortune Magazine) -- A few months ago the most amazing thing happened: Unbidden, unpressured, and all by herself (armed only with my wife's credit card), my 12-year-old daughter subscribed to a magazine.

While Clem has long harbored a fantasy of one day being the editor of the French version of Vogue (inexplicably, she is a life-long Francophile), it still surprised and thrilled me when Vogue started showing up in the mail.

Magazines, books, newspapers -- all that printed stuff is supposed to be dying. Advertising pages, which have been steadily declining, dropped 26% in 2009 alone. But here, surely, was some evidence that publishing might have a chance. If an adolescent who otherwise spends every waking hour on a laptop still craves the printed word, then maybe, just maybe, there's a little new growth left in old media.

This tender, green, old-media sprout began to bloom in a curious way, however. Each month Clem was excited when Vogue arrived. She'd rip into the issue and scamper up the stairs to her chambre à coucher, with enough enthusiasm to do Anna Wintour proud. But after digesting each issue, Clem would reappear with it hours later -- only now a zillion Post-its jutted from its pages, stegosaurus-like.

Over time, one by one, those stegosauri began to stack up, spines out, in her closet. One day I decided to take a peek at the dinosaur graveyard to see what my daughter was tagging so furiously. It turned out that she was trying to annotate each issue, sorting the material by outfits, accessories, footwear, and other categories for later reference. I noticed that the more issues she tagged, the more frustrated she became. This was a lot of work. So why was she doing it?

"Don't you get it?" my wife observed. "She's trying to turn the magazine into a computer."

Et voilà! Of course she was.

The more I thought about it, the more I decided there was good news for the evolution of the publishing industry here -- and better news. The good news is that 12-year-olds, just like their parents and their parents before them going all the way back to the publication of the first magazine in 1731 (the year Charles Darwin's grandfather was born), still enjoy the medium. But they want it delivered in an exponentially more useful way.

Raised to expect instant, sortable, searchable, savable, portable access to all the information in the world, these digital natives -- tomorrow's magazine subscribers, God and Steve Jobs willing -- could well become the generation that saves the publishing industry.

The better news is that with the arrival of Apple's forthcoming iPad and other tablet computers -- touch sensitive, full color, easy to watch video on, network-connected to virtual newsstands and stores -- the publishing industry might once again have a remunerative way of giving it to them.

In fact, for the past year I've been pushing the theory that the Age of Tablets will give print media one last bite at the apple -- and publishing companies that are able to make the transition could one day thrive again. I'm so convinced that it will happen that I've been working with other folks here at Time Inc. (Fortune's publisher) to create prototypes of digital magazines that will soon be delivered to tablets and smartphones. So consider this my apologia.

This isn't a case of excessive introspection on the part of a media insider: The future of publishing is fast becoming topic A in business circles. Financiers who make trades based on access to reliable information fret about the fate of outlets like the Wall Street Journal and the Financial Times. Urban planners worry about what happens to communities if digital books make libraries obsolete. Nonmedia billionaires, from Mexico's Carlos Slim to real estate magnate Sam Zell, have invested their own money in newspapers.

No one can accuse newspapers and magazines of failing to embrace the web. Shortly after going to Time to write full-time about the Internet in 1995, I abandoned print and did a stint on the web. But I soon realized I couldn't do online the kind of long-form journalism I wanted to do. The web is for scanning, not deep reading. People typically spend two minutes or less on a site. Why do you think the killer app is called a browser?

Worse, it was hard to make a buck. While in those early days we were optimistic about online advertising -- the click-through rates were through the roof -- it turned out that users were actually clicking on ads by mistake. Call it poor mouse control.

The standardization of ad sizes and placements only worsened the problem, relegating pitches to the periphery of content, where they are easily ignored. Revenue growth rates quickly began to tank as it became apparent that no one looks at ads online. (Name one you've seen in the past week.)

That's why today online ads bring in junk CPMs -- about 10% of the revenue per 1,000 views compared with print. The only new media life form that has managed to live off those junk-ad rates is the blog, a medium that tends to favor breadth over depth and cheap opinion over expensive, original reporting.

It's no wonder that traditional publishing companies have been looking beyond the "freeconomics" of the web to find new ways to turn a buck. (I'm not even going to touch on broadcast media or movies here, which suffer from the same problems.)

The New York Times has said it will be erecting a "paywall" on its website next year and has been working with Apple (AAPL, Fortune 500) to create a new (and, we can safely assume, paid) Times app for the tablet.

Rupert Murdoch's Wall Street Journal, which he initially wanted to give away online, is now in full-on pay mode. And Murdoch is so pissed at Google (GOOG, Fortune 500) that he's reportedly been trying to get Microsoft's Bing to pay for the exclusive right to search and index his publishing empire. As for the rest of the newspaper business: Good luck, fellas!

Book publishers, having been tortured by Amazon's attempts to cut them out, are now running into Apple's embrace and will soon be hawking their e-books on the iPad, which CEO Jobs unveiled in late January.

The only media company that's in the money these days is Google, whose $23.6 billion in revenue last year dwarfed the entire magazine industry's. While Google is paying lip service to how much it loves and respects professionally produced media, its message is essentially: Adapt or die. Well, we've been trying to, Schmidty.

Now along come tablets. Apple's iPad was exactly what we all imagined it might be -- a giant, honking iPod Touch that does what we e-ink-stained wretches want it to do: It browses the web superfast (thanks to Apple's new, homegrown A4 chip), displays images and video in throbbing color, and runs downloadable apps that we can sell.

Even if consumers fail to stampede to the Apple Store, every major computer manufacturer, from Hewlett- Packard (HPQ, Fortune 500) to Dell (DELL, Fortune 500) to Asus and a raft of others you've never heard of, is focusing on the same form factor, which many people believe will replace not only the laptop but the desktop too. (Just add wireless keyboard.) ABI Research predicts that some 58 million tablets a year will be shipping by 2015.

Apple's announcement -- the product will be available in late March -- already seems to be helping the book business: Apple has said it will let publishers set the price of electronic books for the iPad, something Amazon (AMZN, Fortune 500) has refused to do for Kindle books. Now Amazon appears to be reconsidering its pricing policy.

While old media can find much to cheer about with the arrival of the Tablet Age, which promises to smooth old media's transition from paper to digital, the publishing industry still faces considerable obstacles.

As I zigzagged from the media capital of New York City to the tech wonderland of Silicon Valley in my role as tablet evangelist, I sought answers to some of the larger existential questions my bosses and their brethren will need to address. Here are the fruits of my labor.

Question 1: Will anyone be willing to pay for content delivered to a tablet when they can get information for free on the web?

Here, let me quote my longtime sparring partner, Marc Andreessen, who happens to be the father of the modern web, its greatest advocate, and one of the smartest cookies in the jar. For years he's been (joylessly) predicting old media's demise unless it figures out new business models. The tablet is a false messiah, he argues.

"The problem is that the successful tablet is also going to have a really good web browser on it," he tells Fortune. "So am I going to pay $5 for something I download through the App Store when I could go on the web -- using the exact same device -- to get it for free? Um, the answer to that is no."

It's an old argument. We heard the same thing about the music industry, back in the days when the "music sharing" site Napster allowed people to "swap" MP3s for free. I myself may have even sinned one or two times.

But now? I pay $15 a month for a music subscription that lets me listen to virtually anything, as often as I want. Why do I pay for it when I can still get music for free from a dozen pirate sites? I'm lazy. My time is valuable. And the price seems fair. Steve Jobs proved with that first iPod that people would willingly pay for music when you made it easier to buy than to steal -- especially when the media is linked via a store to a cool, fetishistic device.

A great device is actually the key here: When you've invested in a tablet (or an iPhone or a Droid or a Kindle, etc.) and love it, you want to increase its functionality -- with media. That's why nearly half of the 75 million iPhone and iTouch users download one paid app a month, by the way, when they could get the same kind of stuff for free elsewhere.

Question 2: But aren't tablets just a better way to browse the web?

Almost certainly, in a few years more people will be browsing the web via a tablet than on laptops and desktops. Jobs pitched the iPad as a better way to access the web, in fact. But with the tablet, there ought to be room for great, downloaded apps that are usable offline too. Again, Andreessen takes issue.

In fact, he says, there's a real danger if media companies waste precious time trying to put the genie back in the bottle: "I think that's going to be three to four years that are going to be really critical in terms of making the jump to new models. And in this kind of transition, a three- to four-year delay is really dangerous."

In fact, he advises, apps aside, don't even put your websites behind paywalls because you'll be losing your audience and "gutting your advertising revenue and leaving your market wide open for a competitor." The competitor, in this case, is a blogger who will simply read your stuff and repost it in truncated form à la the Huffington Post and so many others.

It's a persuasive argument. People definitely want to browse. And using your headline, along with a few key bits of content, is fair use and legal. But many also crave deep reading experiences. Man does not live by blog alone! It would be like surviving entirely on cupcakes.

Downloadable textbooks will be among the first paid-content to cross the chasm to the tablet. A whole generation of readers will cut its teeth on that experience, and, it stands to reason, they will grow up both browsing for quick hits and surface understanding while buying the deeper reading experiences.

Question 3: Reading? Reading is dead.

Nearly a decade ago Kevin Kelly, a co-founder of Wired and a great future-of-business thinker, was so sure that reading was dead that he, er, pitched a book on the subject. (He never sold that one.) Still, I think of that these days when I see my daughter Clem communicating with her friends via video messages on Facebook.

So I called Kelly recently and was happy to hear that he has revised his opinion and now thinks reading will prevail -- in a wholly different form. It will, he told me, "become embedded into screens that are full of moving images ... like subtitles in a movie, where you're reading and watching at the same time."

The point is, Kelly says, media are changing. As they get mashed up with other media, newer forms are born. "Right now digital magazines are in the same phase that cinema was when it started out just recording plays. They weren't really movies." Reading will evolve. It's our job to make sure, however, that magazines adapt along with it.

Isn't the idea of a magazine irrelevant in the atomized, buy-the-single-not-the-album world? If that were so, we'd expect to see fewer people reading magazines. But according to the Magazine Publishers Association, 174.5 million people paid to subscribe to magazines in 1970; that number has steadily and consistently risen over the years, to 324.8 million as of 2008. (Paid circulation, another measure of magazines' health, has seen modest declines recently.)

Okay, I know how the sausage gets made in this business -- you can get almost any magazine in America for around 50¢ a copy when you subscribe, vs. a newsstand price that is typically 10 times higher. Publishers, eager to fatten their rate bases -- which ad pricing is based on -- have been known to add other incentives ("a free radio alarm clock!") as well. But even discounting those shenanigans, it's pretty clear that people still derive value from curated, packaged collections of content delivered to them.

Magazines are just vertical collections of content that feed our individual interests. Like blogs. The trick for publishers will be to figure out how to be compensated for individual articles as well.

Question 4: How will tablet-based ads work better than the web?

Three words: full-screen ads. Expect to see them reemerge in digital magazines and other publications -- even blogs. These ads actually have the potential to deliver the best of both the old world and the new: They can have as much impact and be as relevant as the most compelling TV commercials, with the same analytics as the web.

While prototyping digital magazines during the past few months, I've seen new kinds of interactive ads that are cool and arresting -- like highly produced videogames. While I think most publishers will allow you to skip an ad with a swipe of your fingers, a 10-inch full-color touchscreen gives the advertiser a rich enough canvas to grab you by the eyeballs and make its case.

In fact, I suspect ads will work so well on tablets that even if subscription or pay-per-read models don't work, many publishers will be able to thrive on advertising revenue alone.

Question 5: Can traditional publishing companies reorganize and move fast enough to embrace and serve new platforms?

"They've had 15 years to do so since the commercial browser came out," says Jeff Jarvis, a reconstructed old media guy (he worked for years here at Time Inc.) who's now a professor and author of the book What Would Google Do? "They haven't reinvented or reimagined themselves. The talk we're hearing now is not at all about reinvention and reimagination -- it's again about trying to shoehorn old models of content and business into this new reality."

Jarvis is right, of course. Publishing companies haven't reinvented or reimagined themselves so far. That's because the old way of doing business has been blindingly successful.

Can you imagine being the operating chief of a newspaper company in, say, 1995 and having the bright idea to start giving away classified ads? Had you done it, you would have immediately gone from being a fiercely profitable business to a highly unprofitable one. Over the next decade, though, you might have been able to repel Craigslist, which has, in large part, decimated newspapers' revenue stream by giving away classified ads. But what kind of a nut would have made that call in 1995?

No, the people running these companies weren't stupid. It's just that the "reimagination" called for in the switch to the everything-is-free web model was untenable and involved gutting multimillion-dollar operations and giving up millions more of today's revenue on the chance that something would happen tomorrow. It was spreadsheet-defying logic that looked like the right thing to do only in hindsight.

The biggest mistake they made was in ignoring the people who might have been able to solve their problems in the late 1990s when things went bad: their best reporters. Instead they tapped consultants and strategists. Publishers of the greatest newspapers and magazines should have gone to their very best reporters and deployed them!

The best reporters I've met thrive on chaos. When men, women, children, and livestock are fleeing the scene of some unexpected horror, the best reporters are the ones running in the opposite direction. They all suffer from certain personality defects -- pursuing truth over money, status, personal safety -- that would have served their industry well here.

But the consultants didn't do any new reporting. They prescribed old, tired fixes -- cost cutting, outsourcing back-office operations -- but failed to address the core problem: Distribution no longer had value.

I doubt that we'll see publishers dragging their feet as tablets take hold, because the potential revenue model is clearer. Publishing companies, however, will indeed need to do more than simply port their print products to the new tablet-friendly format. And dragging all that baggage from the old world to the new will almost certainly slow us down. The whole enterprise is focused on print because that's still where the money comes from. So in some ways, we continue to face the Craigslist problem.

"The model of the magazine as we know it is just outmoded," says Kelly. "It's doomed if we think of it as the magazine we think of now." Instead, he says, the publishing industry -- books, magazines, newspapers -- ought to be approaching the problem of content creation differently. We should be thinking about selling attention. "Wherever attention flows, money will follow," he explains. "What shape that takes doesn't really matter."

In other words, in the ever-burgeoning universe of media overload, content creators are battling for a user's time. If a book is a 20-hour call on one's attention, a magazine might be better defined as a bid for an hour or so of the consumer's day. "If we think of magazines as an intermediate form -- a read that can last several hours -- it has a tremendous future," Kelly says. "We've just begun to explore what it can do."

I hope the tablet buys us enough time to finally figure all this out, because someday I'd like to visit Clem in her office at French Vogue.

Reporter associates: Beth Kowitt and Christopher Tkaczyk