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Unhealthy App-etite

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Magazine publishers are pouring money into apps, seduced by the notion that tablet computers can open a new avenue to make money from their content. But will they ever make it back? Certainly not in the near term and, perhaps, never.

There are only 8 million iPads in circulation (so far the only interactive tablet on the market) and the audience is currently too small to attract serious ad dollars.

David Link, a founder and creative director at apps developer The Wonderfactory, said magazines are spending as much as $500,000 in upfront costs and hiring three to five staffers—and in some cases up to 10 people—to provide ongoing design, ad sales and tech support. "I don't think most people expect to make much money for the first couple of years," Link said.

"The problem with apps is, not a ton of people are downloading them," said Martin Walker, a publishing industry consultant. "It's a very small business at the moment. Apple still owns it and they won't let you sell subs. You can't make money on something where you're selling a few thousand copies."

Forthcoming tablets that support the Android platform are expected to offer a subscription option, but that opportunity won't come without extra cost. Until developers come up with a way to let publishers create apps that will work on multiple devices, publishers will have to spend more to customize their apps for each screen size and operating system.

Publishers privately downplay their apps' development costs. But whether they grow their apps in-house or use an outside developer, development and ongoing staffing costs are adding up.

Even for companies that profess not to be hiring a lot of additional people, there are the hidden costs of staffers' time that could have been spent on other products.

"There's a lot of investment for the future," said Andy Sareyan, president of consumer brands at Meredith Corp.'s magazine group, which expects to create apps for Better Homes and Gardens, Fitness and its other titles. But, he added, "there will be a time when these are profitable. When that time is, I don't know."

On the revenue side, the money isn't exactly rolling in. Some advertisers were willing to pay to be part of the iPad's launch, but the initial buzz has long worn off, and now advertisers are paying little or nothing to have their ad appear on many magazine apps. At the high end is Condé Nast's Wired, with downloads averaging around 29,000 for the past four months, but other monthlies are selling just a few thousand per month. "These $30,000 sponsorships are not happening," said one media buyer, who asked not to be named. "Nobody's going to pay that because there's no audience."

Condé Nast said after this story went to press that its digital magazine apps business, including Wired, GQ and Vanity Fair’s apps, is profitable (it’s sold close to 500,000 apps across the company), although it declined to give details on its revenue or cost breakdown.

Some worry publishers are mistakenly repeating their experience with another once-new medium. Fifteen years ago, they spent to build an online presence, but treated it as a free upsell to print ads, a move that proved hard to reverse.

"It's so maddening," fumed one magazine publisher who claims to be making money from the title's app, of the practice of treating apps as a freebie. "Why the heck would they give it away?"