Does The Economist's Cell Phone Newsstand Model Make Sense?

The Economist recently announced an innovative newsstand model that provides consumers with the ability to order overnight home delivery of its current edition via alerts to their mobile devices. The trial program sends text messages to its registered users highlighting topics from the current issue and provides a URL for easy ordering. This simple convenience costs $6.99 per issue—the same as the regular newsstand price.

Can this model really achieve profitability? Paul Rossi, The Economist’s North America Publisher, says yes. Rossi claims its publication generates profits similar to its regular newsstand sales due to eliminating wholesaler and retailer payments.

In theory, higher delivery costs would eat into savings. Between the closest delivery zones, FedEx, UPS, and USPS all charge at least $13 for standard overnight delivery of letter-sized envelopes. Presumably, The Economist negotiated reduced shipping rates. Nevertheless, even at a 75% discount, this equates to $3.25 or almost half the issue’s newsstand price. Throw in print, paper, binding, fulfillment, promotion, and so on, and generating significant profits in a fully loaded P&L would prove challenging

Profitability aside, a successful model must be sustainable and provide large-scale potential. As noted in AdAge:

[…] The circulation generated through the cell phone program is likely to remain very small as a proportion of the whole. In England, the number of buyers via text has numbered "hundreds not thousands a week," [Rossi] said. "As a percentage, that’s not very much."

One questions if it would fit better with a monthly publication where waiting only a day versus a few weeks for a magazine is a considerable difference. Perhaps it would make more sense for celebrity titles where gossip and scandals provide a plethora of gotta-have-it-now news.

With free online breaking news available through laptops, iPods, and mobile phones, the three-step process of using a cell phone, going online, then ordering a hard copy just to receive it the next day seems cumbersome.

This is the crux of the issue. The Economist delivers an old medium through a new process. However, with the country battling a recession and consumers’ access to 24/7 free content, the industry still must address the declining demand for magazines.

The model must overcome many issues to achieve financial success of any significance. Nonetheless, investing into a new channel offers valuable returns. The Economist created a new platform to communicate with its readers. The publication will gain key insights into mobile phone marketing. It will also build stronger relationships with its customers. The resulting loyalty can create a foundation the title can cultivate to convert customers to subscribers and to promote other content and services. On the edit side, the magazine will learn what topics appeal to its readers.

In the spirit of innovation, companies often must take risks to reap the rewards, even if those benefits do not arrive in the short term.