Apple 2.0

Covering the business that Steve Jobs built

The iPad newsstand that works

January 24, 2011: 12:57 PM ET

Zinio's digital revenues have grown 350% since last April. Will Apple put a stop to that?

When we wrote a few weeks ago about the signal failure of Apple's iPad to halt the magazine industry's downward spiral (See Why digital newsstands stink), we had forgotten about Zinio.

Zinio, which has been giving publishers a venue to sell their wares online for nearly a decade, is the exception to all the rules of iPad publishing:

  • Apple (AAPL) doesn't let publishers easily sell subscriptions on the iPad, but Zinio will.
  • Apple won't give publishers the names, addresses and billing information for iPad readers, but Zinio does.
  • While sales of high-profile titles like Wired's iPad edition have collapsed -- from 100,000 in June to 23,000 in November -- Zinio's digital revenues have shot up, it can now be revealed, 350% year over year.

Many of Zinio's iPad titles are enjoying an even bigger bump, albeit from a quite modest base. "The numbers," says Paul Michelman, director of product development at Harvard Business Review, one of Zinio's success stories, "have gone from the dozens to the thousands."

All that may be about to change.

For nearly a year, it seems, Zinio has been flying under Steve Jobs' radar.

The privately held company is in a different league than Condé Nast, which spent a fortune redesigning Wired's iPad edition, or Time Inc. (TWX), Fortune's publisher, which has been having trouble collecting $4.99 per issue of magazines like Time that new subscribers can get in print for less than 36¢ apiece.

Perhaps because Apple needed Zinio's titles -- magazines like Rolling Stone, Maxim, National Geographic and The Economist -- to flesh out the iPad's initial offerings, or because the two companies have a long history together (a Zinio app was pre-installed in every Mac sold from 2004 to 2007), Zinio was permitted to keep its business model in place when the iPad launched last April.

That model, which dates back to when CEO Rich Maggiotto left AOL to start the company shortly after the Time Warner merger, was to offer publishers a easy way to distribute digital editions without changing anything about the way they produce their magazines (no bells or whistles required) or do their business (Zinio looked on their books like any other distributor).

You gave Zinio the files, and they put them on any screen that would have them, from PCs to smartphones to e-readers. Unlike Apple, Maggiotto's goal was to accommodate the publishing industry, not revolutionize it.

The business grew slowly at first. The early titles were mostly tech publications like Ziff Davis' PC Magazine, its very first offering. But Zinio developed a niche of sorts offering expatriates a way to easily read U.S. publications and for Americans to get foreign fashion magazines before they went of out of style. Today it sells 3,500 titles in 29 countries and 19 different currencies, and it's adding 50 titles a week.

What happens next is not so clear. The terms and conditions by which publishers will work with Apple in the future keep changing -- at least as reported in the press (see here and here). It's not certain whether the Zinio newsstand will survive in its current form when Apple either creates its own newsstand, as some have suggested, or folds everything into iTunes.

The latter could be a mixed blessing. On the one hand, Zinio might finally have to start paying Cupertino the 30% cut Apple takes from every other app developer. On the other, being on iTunes could open up a vast new addressable market for Zinio's wares, namely the 160 million credit card numbers that Steve Jobs has been holding so tight to his chest.

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[Follow Philip Elmer-DeWitt on Twitter @philiped]

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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