Monday, June 14, 2010

News Corp buys Skiff from Hearst, invests in Journalism Online

Earlier today, News Corporation announced that it acquired Skiff from Hearst, and made an investment in Journalism Online. Skiff is developing a large-form-factor eBook reader designed for magazines and newspapers, and Journalism Online is a venture led by Steve Brill that's developing ways to monetize online content.

News Corporation's investment in Journalism Online makes perfect sense, but its acquisition of Skiff opens up some questions. Rupert Murdoch has made it clear that he believes that the era of free content on the Internet is over, and Journalism Online may give him the tools that he needs for monetization. However, News Corp doesn't need its own tablet platform...unless it's planning to make its sites "walled gardens" and close off access to the open Internet.

Here's a potential scenario: News Corp's newspapers would maintain a token presence on the web, but to access to their full contents, you'd need to buy a Skiff reader. News Corp will discount the price of the Skiff when it's purchased with an annual subscription to one of its newspapers. It may still support dedicated apps for the iPhone and iPad, but you'll no longer be able to get to the "meat" of its sites with a web browser.

News Corp would make its platform available to other publishers (for a price,) just as Hearst had planned to do, so it wouldn't necessarily be a News Corp-only reader. It's likely that News Corp will also make its eBooks available on the Skiff reader.

This strategy would undoubtedly sacrifice advertising revenues for subscriptions in the short term, but Murdoch may be willing to make that trade-off. Over time, he may believe that he can build a big enough subscription audience to generate substantial advertising revenues along with subscriptions. Also, by owning the hardware platform, News Corp can control the pace of development and insure that it gets eBook readers at the lowest possible price. News Corp would also not be at the mercy of Apple or Amazon; if those companies change pricing or distribution models in their favor, News Corp can move subscribers over to the Skiff.

There are a number of questions, however: If the Skiff is perceived as a closed platform, would News Corp sell enough to get a profitable subscriber base? (One could argue that the Kindle is a closed platform and it hasn't hurt Amazon.) Can News Corp keep the Skiff platform competitive over time with tablets and eBook readers from competitors? Are customers going to be willing to add a Skiff reader to the other devices that they already carry? It'll be interesting to see how News Corp integrates Skiff into its plans over the next 12 months.

Update: According to PaidContent, News Corp acquired Skiff's intellectual property and software from Hearst, not the Skiff reader hardware, for which Hearst is still trying to find a buyer. It appears that News Corp will try to license the Skiff software to other manufacturers.
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