New media dilemma - publishers in optical media

Is there opportunity for publishers in optical media--or only peril? Here, we ask a pioneer in CD-Interactive for the perspective from his side of the digital fence.

The age of electronic information is upon us. Advocates of new media believe that for many publishing companies, magazines are just one viable mode of delivery. Publishers shouldn't see themselves as being in the magazine business, they argue, but rather in the information business, where the vehicle is less important than the information delivered. Various digital options--CD-ROM, CD-I (Compact Disc-Interactive, which uses a television screen to display information) and the new 3DO--are vying to establish themselves as the industry standard. Magazine publishers ignore this revolution at their peril, new media advocates say.

Yet the technology is still in its infancy. Not only is there no standard as yet, the installed base of new media hardware is still quite small, and the market definitely is unproven.

Sean Callahan, a former FOLIO: editor who is now a consultant to Cowles Business Media, FOLIO:'s parent company, spoke with Dr. Bernard J. Luskin, head of Philips Interactive Media of America (PIMA), a unit of Philips N.V. set up to create and publish new media titles for its new CD-I players. Philips is the inventor, with Sony, of the compact disc. PIMA senior vice president Emiel Petrone sat in on the session.

FOLIO: Our readers may not realize how much work has already gone into optical media. As an example, can you give us an estimate of the development costs of the CD-I format to date?

LUSKIN: You can't answer that without taking into consideration the development costs of the audio compact disc that preceded it. CD-I is an outgrowth of the CD--which Philips has been working on with Sony and Matsushita, among others, over many years. I would estimate that, combined, there's been $1 billion invested in compact disc technology, but I don't think you can attach any dollar amount to CD-I alone.

FOLIO: How does PIMA function relative to Philips?

LUSKIN: We are set up as a profit center and function like many book publishing companies. We are creating titles, licensing others from other publishers, aggregating inventories, doing revisions. In the way that Polygram Records supports Philips audio CD players, we support CD-I hardware.

At present, we have 87 titles out, with 200 currently in production. (None of them are based on magazines, although some of the material comes from books produced by media companies with magazine holdings.) And we have assured our dealers and customers of our commitment by launching four or five new titles every month.

FOLIO: Obviously, you believe that the CD-I, as opposed to CD-ROM or some of the other formats, will be the foundation for the home information and entertainment appliances, but how does this affect magazine publishers?

LUSKIN: Every print publisher has to decide whether to stay in print and lose market share; go into electronic publishing and build up business; or do nothing and go out of business.

FOLIO: That's the kind of attitude that makes publishers so wary of electronic publishing. First, there is a new technology for which there is no apparent market. And whatever market exists is dependent on technological standards controlled by hardware manufacturers. Then companies like Philips come along and start their own publishing firms.

LUSKIN: There is no "us" and "them" anymore. Anybody who is in the information business is today a publisher because of the advances in technology. With the advent of digital information, the publishing business has changed forever. The movement of information from print media to optical disc in the 21st century will be as profound a change as the transition from manual production to mechanical typesetting and high-speed presses was to 19th century publishing.

FOLIO: Do you think publishers share your view of the future?

LUSKIN: I'm a clinical psychologist by training, and what I see in many of these publishing companies managed by men over 30 is that they are building their futures out of their past experiences--and you can't do that anymore. It requires a vision and flexibility that a lot of companies don't have. As a result, many publishers are either going to have to merge, or create alliances with computer companies, record and motion-picture companies, etc., in order to participate in this new information business.

FOLIO: So you anticipate a decline in print media?

LUSKIN: Knowledge today is portable, pliable and flies through the air. The carrier is a secondary concern. The objective is to put it in your mind, not on a page. People will continue to have a choice of media, magazines included, but the only question is which media is most appropriate. The signs should be clear. Viacom has an interactive media unit. There is ABC Interactive. Random House has an electronic publishing division. Compton's, Grolier and Britannica have their encyclopedias on discs. There is no going back.

FOLIO: There are so many new media formats, perhaps a dozen vying for a share of a nascent market. That frightens off content providers, especially smaller magazine publishers. When are we going to see some standardization?

LUSKIN: There are no technical barriers anymore, there are only business interests getting in the way. Cross-platform compatibility is achievable if the manufacturers want it. Finally, IBM and Apple and a few of the others are giving it lip service, and I think it will soon be here--if they truly want it. There is no way to undo the format decisions made years ago, and we have to work to overcome them and we can. Philips, for its part, has been in discussion with nearly 10 manufacturers for CD-I players, so that is coming along.

FOLIO: What will the price points be in new media?

LUSKIN: There is a great diversity of programming, from business to educational to reference to games. Each has its own structure. But I would expect the software eventually to average at $19.95 for consumer entertainment, to $49.95 for specialized business titles. CD-I can play games--we have some 15 titles from Nintendo--but it is much more than an entertainment system.

FOLIO: What is the criteria for magazine publishers to know whether they have content appropriate for delivery through new media?

PETRONE: Joining the CD-I Association is a good starting point. Among other things, it gives you a kit that should answer most of a publisher's questions about getting involved in the medium. It will help you decide whether to buy the tools to produce CD-I in-house or whether to take it to an independent production outfit. The association can steer you into a business-to-business development or toward a consumer-oriented program.

FOLIO: There are more small magazines than large. Does optical media figure in the future of small magazines? And what of trade magazines?

LUSKIN: We are not actively pursuing magazine companies, but are looking to develop broad-based consumer titles of our own. That is our focus at the moment. But I must have had 15 magazine publishers in my office in the last year who have talked about launching a magazine on disc. We keep kicking around this term "discazine" as a vehicle for doing that. We still need to sort out the cross-platform questions, but there is no question in my mind that the carrier of the future of diverse information will be the optical disc. Magazine publishers ought to look very carefully at this medium because there are going to be millions of players out there very soon. I think there is enough of an installed base out there now for a magazine or two, and we would help anybody who wants to do one on their own.

FOLIO: What are some trade or professional magazine opportunities?

LUSKIN: The medical field is one. We are seeing some development activity whereby the massive amount of scientific information is combined with instructional visuals. There is a use for this in doctors' offices in helping the patients understand a complex medical condition or problem.

FOLIO: What is a typical development deal with a content provider? You recently signed an agreement with Reader's Digest for a home-repair series.

LUSKIN: There is no standard deal. The process is not unlike the packaging that goes on in the book business or in TV, for that matter. It all depends on what you bring to the table. And the compensation will reflect that. While PIMA has the facilities to underwrite and manufacture the entire production, there have been times when we went outside to a smaller production house to produce discs for us. In the case of Reader's Digest, they have put together their own team to create the interface design and software architecture for the product. They already own the pictures and text that will make up its intellectual content. PIMA will provide the final assembly structure and engineering through a company we have in Washington, D.C. It's not hard to find production companies that will work with the magazine publisher to adapt their content to interactive media.

FOLIO: Are these functions likely to become part of a magazine's production department one day?

LUSKIN: Absolutely. Right now USC, UCLA, California College of the Arts, to name a few schools near us, are incorporating these multimedia skills into their publishing and graphic arts curricula. In my field in particular, I see graduate-level programs being created in the psychology of learning from interactive media. Writers, graphic artists, photographers, cinematographers, set designers--those involved in the collection and presentation of information--will have to learn to work in interactive media.

FOLIO: Magazine publishers may not feel that you understand or want their business. They sometimes cite huge development costs and low licensing fees, for example.

LUSKIN: We are not in the business of selling the idea of interactive media. We are in the business of creating it. Magazine publishers who decide that they want to get into it, too--we welcome them and will help them as much as we can. But we are working very hard to develop products that will excite and enrich the consumer.

FOLIO: What are the typical costs of title development?

LUSKIN: We are trying to average our development costs at $350,000 to $400,000 per title, but there are special projects that could come in at a $1 million. This may sound expensive, but what does it cost a book publisher to create a best seller? In the end, producing interactive media costs no more than any other audiovisual medium of similar scope.

FOLIO: For that kind of money, many magazine publishers produce 12 issues a year.

LUSKIN: But at what kind of a unit cost and rate of return? Our recoupment is based on sales of 30,000 to 40,000 copies over a couple of years at a price of $30 each. Like anything else, you have to match your production costs to your anticipated sales.

FOLIO: Are you in a position to take digital text files and scanned art--which is about all most magazines have now--and convert that material into an interactive magazine?

PETRONE: That's not enough. We want our prospective partners to come to the table with an interactive vision of their product already in place. First of all, they have to have the content that lends itself to this new media. It has to be compelling and marketable. But they must understand enough about interactive media to apply it to their content--which they should know better than anyone else--and have a design for an interactive title that responds to the possibilities of the new media and enhances the reading experience.

FOLIO: It would seem that the magazine publisher is going to have to invest in the medium even before he can get to the stage to talk about it.

PETRONE: If you look at it on the scale of your present way of doing business, then yes. But this is a new business. Many trade magazines have close relationships with their advertisers or groups of advertisers, so is this perhaps a way to structure a deal whereby advertisers pay for the development costs of a title that will benefit them or their industry as a whole?

LUSKIN: To me, magazines are very unique businesses. They have identities and identified audiences that you don't have in book publishing. PIMA can make an interactive product out of a book, but I'm not so sure that magazine publishers aren't best equipped to make their own content interactive. I would like to help them however I can, but I don't think that at this time we would license a magazine as we would a book.

FOLIO: But you're not against the idea of magazines on discs?

LUSKIN: I believe somebody should be doing it, but it will be better done by a magazine company. I want to see all kinds of software available because this business is really a content-driven business. It's only lately that the computer companies have begun to realize it, and they are getting very nervous about it. Consumers are finding incompatibilities and the format wars tedious. They are also realizing--on the DOS side at least--that anybody can make a computer these days.

So where can you be competitive? You are in the knowledge industry, not the computer industry. A can opener is a can opener; a computer is a computer. Each operates alike. But variety in content is endless, and publishers should capitalize on that.

COPYRIGHT 1993 Copyright by Media Central Inc., A PRIMEDIA Company. All rights reserved.
COPYRIGHT 2004 Gale Group