A few years ago, the magazine industry was in disarray. Subscription rates fell each year from 2008 to 2011 and newsstand sales saw a sharp decline. Ad revenue -- the lifeblood of the industry -- fell off a cliff in 2008 and 2009.
Digital publishing -- really, magazines' only hope for salvation -- was a disaster. Most publishers insisted on charging the same rates for digital as for print issues, and every magazine had its own app. So even if you were willing to pay up, managing your subscriptions was a mess, too.
As a former magazine editor and an avid magazine reader, I was dismayed at the chaos and called the industry out in a Motley Fool article in early 2011. Disheartened, I sold my shares in Time Warner (TWX), my old employer.
Then, the industry finally saw the light. In an unlikely pairing of rivals, Time Warner (publisher of, among others, Sports Illustrated, People, Fortune, Real Simple), Condé Nast (The New Yorker, GQ, Vogue, Vanity Fair), News Corp. (NWS), Meredith (MDP) (Better Homes and Gardens, Family Circle, Parents), and Hearst (Cosmopolitan, Good Housekeeping, Car and Driver) joined forces to launch Next Issue, an innovative way of approaching the magazine business.
Finally, someone in the print industry was getting it right!
Instead of facilitating individual subscriptions, Next Issue offers up every magazine in its library for a single monthly payment -- $9.99 for monthly magazines and $14.99 for monthlies and weeklies. The app launched in 2011 on Android with just seven titles. An iPad app followed and by July 2012 the company provided 39 titles. This past August, it hit the 100-title mark.
It makes sense: Rather than gouge subscribers by asking them to pay printing costs for digital products, the publishers pass along the cost savings to readers. And by charging just one price for everything, popular titles like People and Better Homes and Gardenshelp subsidize less flashy news and niche publications while also exposing them to a broader audience.
Score One for the Customer
Not only is Next Issue a brilliant business idea, but it works beautifully for consumers as well. You select the publications you want (you can add or remove titles at any time) and they are automatically delivered to the app as soon as they are released. Save any you want, and the rest are deleted over time to make space for new issues.
Magazines look gorgeous on Apple's (AAPL) iPad -- even better than print in many cases -- and digital issues offer more than their print counterparts in many cases as well: embedded videos, animated graphics, interactive ads, and lots of "tablet exclusive" content. For avid magazine readers, Next Issue puts an entire newsstand in your hands.
So Should I Invest?
Next Issue is a win for the industry and magazine afficionados, but what about investors? Can we take advantage of the great digital renaissance, too?
The industry certainly faces hurdles, one of which is changing consumer behavior. Just like some book lovers prefer the tactile sensation of turning an actual page, there are those readers who are used to reading their glossies printed on actual glossy paper.
Next Issue CEO Morgan Guenther told Forbes in March that his goal was to get to 1 million subscribers by September 2014. At that time, the company's user base was at 120,000. Then again, that's with no marketing muscle behind the product.
While you can't invest directly in Next Issue, you can invest in some of its content providers. Let's take a look at two of the major publicly traded publishers, Time Warner and Meredith. (News Corp. is primarily in the newspaper business as far as publications are concerned, so we'll set it aside.)
Time Warner, whose popular stable of magazine titles fall under the Time, Inc. division, has had a tough few years, but its stock has recovered nicely, hitting a 52-week high just last week. It recently announced that it's buying American Express' (AXP) magazine division, which publishes Food & Wine and Travel & Leisure.
Right now, buying shares of Time Warner gets you a foot in the publishing biz, but also comes with a cable TV network division and a movie studio, among other things. However, the company is set to spin off Time, Inc. early in 2014. That may be a good time to reconsider -- you'll get a pure-play publishing company with strong brands and an established base.
Just be sure to watch the circulation and ad revenue numbers, which continue to slide. This digital renaissance is still a work in progress, and it may be a while longer before Time, Inc. fully realizes the benefits.
Meredith, which was trying buy Time, Inc. before the spinoff was announced, may be the better play here. It's not as well-known a name itself, but its brands sure are: Better Homes and Gardens is the No. 4 magazine in the U.S. (and really No. 2 if you consider that the top spots go to AARP publications that are mailed to all members), with more than 7.6 million paying subscribers. Sister title Family Circle comes in seventh with just over 4 million subscribers.
Last week the company reported strong first-quarter results that point the way to a bright digital future, with digital ad revenue up 12 percent -- a record high. Digital subscriptions are up 7 percent over last year's first quarter. Those are the kinds of numbers investors want to see.
Meredith is trading near its 52-week high, but with growing market share, a solid digital strategy, and a growing dividend, it's an attractive move for those wanting to take a chance on the industry.
The Bottom Line
As we've already seen in the book industry, digital is a game changer for publishers. Now, the magazine biz has finally gotten on board. It's only a matter of time before e-magazines are as commonplace as digital books.
Motley Fool contributor Robyn Gearey has no position in any stocks mentioned. The Motley Fool recommends American Express and Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days.
Thanks to Next Issue, the Future of Magazines Is Finally Looking Brighter