Another Disruption To The Media Business?

by: Mike Arnold

Avid magazine and newspaper readers know there is value in quality content. It promotes ideas, education and public discourse. It also generates advertising and subscription revenues for the publisher.

That may be about to change for traditional publishers in a big way as we move farther along the paradigm shift to a digital media world.

Many tablet users are probably familiar with Flipboard, the popular news and content aggregator. On Tuesday March 26, 2013, Flipboard revealed an updated 2.0 version, which allows users to not only aggregate content for consumption, but also to curate content by making their own magazines for sharing.

The implication is that everyone with the Flipboard app can now become their very own editor, exponentially expanding the number of publications available and, in turn, the competition faced by traditional magazine publishers. Increased competition, of course, spells trouble for advertising spend and profit margins for the traditional publishers.

The Flipboard news comes just 3 weeks after Time Warner (NYSE:TWX) ended talks to sell its magazine assets to Meredith Corporation (NYSE:MDP), instead opting to spin off those assets to existing Time Warner shareholders. Investors in Meredith Corporation and the spun off magazine assets of Time Warner should consider the implications of Flipboard 2.0, and its potential impact on future business performance and valuation.

For those Flipboard users interested in curating content, I expect that "influencers" will establish a sizable following, similar to the Twitter and Pinterest platforms. According to Mathew Ingram of paidContent, when asked about revenue sharing opportunities with magazine curators, Chief Technology Officer Eric Feng at Flipboard had this to say: "that is something we are thinking about doing at some point in the future."

Flipboard 2.0 is another example of the creative destruction that destroys old markets and creates new ones, with traditional modes of distribution being disrupted by the new paradigm in content consumption. Needless to say traditional distributors of content are in a precarious spot. That's why Netflix (NASDAQ:NFLX) is creating proprietary content (House of Cards, etc.) with the stated goal of becoming HBO (a division of Time Warner) before HBO can become Netflix.

That isn't to say traditional publishers aren't trying to adapt to the marketplace. They certainly are. One method in doing so is taking the hassle out of managing multiple subscriptions to multiple publications. A consortium of publishers, including News Corp (NASDAQ:NWS) (NASDAQ:NWSA), Hearst Corporation, Conde Nast, Meredith Corporation, and Time Inc collaborated to form Next Issue, a monthly subscription service allowing users to access over 80 magazines, all for one fee, accessible digitally.

Next Issue is already available on Google (NASDAQ:GOOG) Android, Apple (NASDAQ:AAPL) iOS and will soon launch on Microsoft's (MSFT) Windows 8 platform, with the hopes to attract 1 million paid subscribers. While Next Issue is a distributor, it's owned and operated by prolific, premium content creators with the added benefit of making it easier for users to consume content digitally, for one price, in one place. Traditional publishing distribution is clearly waning, while innovative digital distribution channels are growing in value.

The Next Issue service is similar to Spotify, jointly owned by music labels, including Sony BMG (NYSE:SNE), Universal Music Group [owned by Vivendi (OTCPK:VIVHY)], and Warner Music , and other investors such as Goldman Sachs, Fidelity Investments, and Coca-Cola (NYSE:KO). Both are positioned for digital access to information, not ownership. The benefit is users can access the information at any time, from anywhere, and have their information stored in the cloud, rather than on their hard drives (or coffee tables, in the case of Next Issue).

Spotify, by the way, is rumored to be raising more money at a $3.5 billion valuation. Investors in Pandora (NYSE:P) (valued at $2.5 billion) and Sirius XM (NASDAQ:SIRI) (valued at $20 billion) should take note. Certain private investors are clearly bullish on the value of internet radio. They may be similarly bullish on digital distribution of newspapers/magazines in the future.

I expect that owners of premium content will continue to be rewarded by consumers, especially as a direct to consumer model plays out over time. That bodes well for the content producers in the marketplace. It also bodes well for users who become influencers, and curate their way to building a brand. Traditional distributors of content, on the other hand, must innovate to compete and survive.

Disclosure: I am long OTCPK:VIVHY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.