Pulse

Flipboard hopes to be the savior of the publishing business

October 18, 2013: 2:40 PM ET

Some publishers have pulled out from mobile news-aggregators like Flipboard because they don't see any real payoff. But the company says it's creating a program to help such smaller publishers earn more.

131011112435-flipboard-620xaFORTUNE -- In July of last year, the political news and opinion site Talking Points Memo proudly declared that it was "excited to announce that tablet and smartphone users can now read TPM on Flipboard," a popular, magazine-style news-reading app for mobile devices.

Last week, TPM founder Josh Marshall informed readers that the site's content no longer appears on either Flipboard or on the competing Google Currents (GOOG) app. The apps "are basically scams against the publishers," he wrote.

Why the total change of heart? Because Flipboard takes whole articles from publishers and -- in many cases, including TPMs -- gives those publishers essentially nothing in return.

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At least, that's how Marshall interprets the situation. And as things stand for now, he's essentially right. But Flipboard CEO Mike McCue says Marshall jumped the gun, and that he apparently doesn't understand how Flipboard works, or how it will work in the near future. The two have never spoken, McCue says, despite his company's several attempts to reach out to Marshall, who also has not responded to Fortune's requests for comment.

Flipboard displays the content of magazines, newspapers, blogs, and social media sites in a magazine-like format. Readers flip through the pages with a swipe. For bigger publications, full-page ads appear every few pages. Both the content and the ads are in a format that is in several ways vastly superior to reading on the web and many standalone apps -- and in some ways even better than reading a magazine or newspaper. The ads sell for considerably more money than web ads sell for, according to McCue. "From the beginning, we have taken the tried-and-true principles of print and applied them online," he says.

But it's not necessarily a solution for the troubled publishing business, at least not yet. Each publication on Flipboard must sell its own ads, at least for the time being (the company does offer some support). Many smaller publications are not equipped to do so. And the ads are in a format that many publishers and advertisers are not yet used to dealing with -- there are few standards yet. For bigger publications that can sell ads, a presence on Flipboard might often be a much better deal than web ads are. For smaller ones, revenues are either nonexistent or so small that the only real benefit for publishers is the "exposure" they get.

The exposure angle is what irked Marshall. In the days after his initial, somewhat churlish blog post, he expanded on his complaint through a series of edits and additions to the original piece. Marshall acknowledged that "scam" might have been an ill-chosen word (though he did use it again), but he stuck to his assertion that Flipboard is "bad for publishers" because all it offers sites like his is "reach" and "brand awareness." People who read TPM on Flipboard aren't reading it on his site, where the ad revenues are feeble, but at least they're revenues. "You can't eat 'reach' and we can't pay salaries with 'brand awareness'," he wrote. He did acknowledge that "no one forces TPM or other sites to work with these services, and [those services are] not really explicitly lying."

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It's hard to know what he thinks they might be implicitly lying about. There's no indication that Flipboard has misrepresented itself. McCue says he understands Marshall's complaint, but he also says that TPM's presence on Flipboard probably helped more than hurt the publication, since TPM only had about 30,000 monthly readers on the service. It's not known how much ads on TPM sell for, but it's probably less than a buck per thousand impressions. And the fact that someone had been reading TPM on Flipboard doesn't necessarily mean they are now reading the website. Some commenters have explicitly said they wouldn't. So maybe it was worth being there just for the "reach" after all.

But more important, McCue says, if Marshall had talked to the company before yanking his content and calling such services "scams," he might have learned that Flipboard is planning to create a program for smaller publishers, enabling them to in effect band together to sell ads. This is a bit of news: Flipboard hasn't formally announced it yet. McCue says the program will launch sometime next year. Further, the company plans to create its own ad team to take the burden off smaller publishers.

"We want to help them," McCue insists. He agrees that the argument by some media pundits -- that "reach" by itself is a good enough reason to be on Flipboard -- is rather witless. "It's very much about the money," he says. "Getting your name out there" isn't of much value if revenue isn't coming in, he acknowledges -- though he adds that a presence on Flipboard puts publications in a much better position for when they can eventually start collecting ad revenue. Building up a readership now will make it easier to sell more ads for more money later.

McCue says he had to start with bigger publications first, simply because they were the best prepared to come on board. They now sell ads to big brands like Gucci, Levi Strauss, and Delta. On average, McCue says, these ads sell for many times what the cost-per-thousand rate is for banner ads on the web.

That's in part because Flipboard's ads are more like magazine ads. They're big (especially on a tablet), arty, and emphasize brand awareness. The value of web ads, meanwhile, is plummeting because they simply don't work for the most part. Making matters worse is the way they are increasingly being sold -- through ad networks where pricing and placement are basically negotiated by computer programs, driving prices ever lower. Brand campaigns are worth much more than the kinds of ads that are churned out by ad programs -- many of which are downright cheesy.

Flipboard takes a cut of all ad revenue that is, according to McCue, very small. "The publishers get the vast majority of revenues," he says, though he won't discuss numbers. He does say that total ad revenues in the company's latest quarter were three times the revenues of the preceding one.

Two other well-known publishers pulled their content from Flipboard last year: Wired and The New Yorker, both Conde Nast titles. The app still displays a bit of introductory text for their articles, and readers who want to see more must click out to their websites. McCue says he hopes to have The New Yorker back at some point ("we're always in talks with everybody"), and notes that those publications left the service just as the New York Times was signing on. Times readers get three free articles a month. After that, they must either subscribe to the paper or prove through a sign-on that they already do. The New Yorker felt that since so much of its content was behind a paywall, it didn't make sense for it to be on Flipboard. That might change now that Flipboard accommodates paywalls, McCue says.

And several Conde Nast publications are still on Flipboard, including Vanity Fair, Bon Appetit, and Glamour. Vanity Fair's ad inventory recently sold out, according to McCue -- still a rare occurrence on the app.

Assuming that most people take to aggregation apps (still a big assumption), there will still be the question of how far that will go toward solving the problems of the publishing industry. Flipboard claims 90 million users. Even if that's inflated (there's no indication of how many of those are active users, for example), there's little doubt as to the app's popularity. But there are also several other competing apps, like Google Currents and Pulse, to name just two. How that will affect the market is impossible to know at this point -- will publications stick with a whole bunch of them at once? Will readers? What will be the effect on ad rates if all these apps are competing to sell ads?

For Flipboard users, any loss of content is a bad thing, as Marshall himself acknowledged in his post. It's a truly elegant product. And it solves the problem of having to skip through a whole bunch of different websites or apps. It's like a not-ugly RSS reader with a user interface that beats just about anything on the web, and on most standalone apps. But none of that will mean anything if publishers feel they can't make enough money to keep the articles coming. McCue believes they eventually will -- but he hasn't proved it yet.

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