If you hang out on the right corners of the Internet, you've probably heard of Marco Arment's new app/publication The Magazine, which is based on a stripped-down format and a simple business model. You pay $1.99 a month to subscribe, and you get "an issue every two weeks, usually with four medium-length articles."
Thinking about the possibility that this will succeed helps illustrate a point about the economics of content bundling that I think often gets missed when people talk about cable TV. Lets say Arment starts out paying writers $1,500 a piece for his eight articles per month. That's $12,000 a month in basic editorial expenses. Now maybe he has 10,000 subscribers, and the whole thing is sort of working. Good for him. But then after a few months, he's got some really strong pieces, and buzz picks up, and now he's at 20,000 subscribers with still basically the same fixed editorial cost structure. Now with the increased revenue, it's possible to bump up to 10 articles a month. And now suddenly we're getting somewhere. The Magazine still only costs $1.99 to subscribe, to but at 10 articles a month it's a more attractive offer than at eight articles a month, so more people subscribe. But more subscribers means more revenue and thus more ability to produce content. What's more, subscribers have access to the entire back catalog of issues. So as The Magazine gets bigger, the same $1.99 a month fee buys you more content. It's a virtuous circle in which subscription growth drives a superior value proposition that drives more subscription growth. Of course as you scale up, you do hit some hiccups—eventually you need to add extra editorial staff and such—but it's pretty smooth sailing.
Eventually you've got a juggernaut. About 100 million people are each paying $2 a month (let's make the numbers rounder) to subscribe to your publication. Taking $100 million per month in writer fees (the rest goes to editorial and business overhead) and a very generous $2-a-word fee structure you've got ... 50 million words of high-quality journalism published every month. Now all you've got to do is raise prices to $2.10 a month and you're earning more than $100 million a year in profit. Nice work.
But not everybody's happy! After all, nobody needs to read 50 million words worth of magazine journalism on a monthly basis. Nobody's got the time, and nobody's got the interest. Heck, lots of these articles are about things I don't even care about. The NHL draft? Country music? Who cares. I'd be willing to give The Magazine almost half of what I pay—a cool $1 per month—in exchange for access to a mere 1 percent of the total journalism they publish. Wouldn't that make sense and be more fair? Isn't it just greedy to make everyone accept or reject this single total package that's far too large and miscellaneous for any one person to possibly want?