In the world of publishing, Hearst Corp. is a media giant. That’s not necessarily a good thing in today’s business climate, as newspapers and magazines are no longer the profitable publications of days gone by. Hearst has slashed the work force at a number of its high-profile newspapers, including the Houston Chronicle and the San Francisco Chronicle, and it shut down the print edition of the Seattle Post-Influencer in March. The Seattle P-I had been in print for 146 years, so the decision to go online only was not insignificant. It’s not a good time to be in the print publication business, and definitely not to be a giant publisher like Hearst with huge costs.

The company seems to believe that its next move is in the digital media arena, as indicated by the new venture it’s incubating: Skiff LLC, which according to the announcement aims to “launch a new consumer e-reading service platform in 2010 that will deliver enhanced content experiences to dedicated e-readers, as well as to multipurpose devices such as smartphones and netbooks.”

The digital media industry is in its infancy, but giants like Amazon and Barnes & Noble are realizing the potential of the e-book market. Although Amazon will not divulge sales figures for its Kindle electronic book readers, analysts estimate as many as 1.5 million have been sold this year. B&N has only just released its Nook reader, but early orders have outpaced production, and the company is already increasing capacity to keep up. The e-book market is definitely hot right now, but is it strong enough for an upstart like Skiff to save Hearst from the declining print business?

What is Skiff?

Skiff seemed to come out of nowhere, but the venture is a new name for a company formerly known as FirstPaper. FirstPaper was started by Hearst a few years ago, apparently to help it migrate from print to digital media. Skiff has been organized to form an ecosystem that can handle all aspects of digital media (magazines, newspapers, blogs), providing publishers and advertisers with a way to reach the consumer.

With Hearst at the core of the ecosystem, Skiff has instant access to the publisher’s substantial print content. This currently consists of hundreds of newspapers and magazines. It’s easy to see why Hearst is backing the Skiff venture; it gives the publisher a new channel through which to sell its existing content. The company will open a digital content store that will offer e-books, magazines and newspapers for digital distribution.

In addition to content, however, Skiff will produce technology that is aimed at optimizing distribution to consumers, who will consume their content on dedicated e-readers, phones and computers. It’s obvious that Skiff will introduce its own reader to compete with the Kindle and Nook, based on the partners that are signed up: Marvell Semiconductor, which offers an “e-reader on a chip” that would give it control over the consumer purchasing and reading experience, and Sprint, which ensures a content delivery system is in place. The carrier will supply the network needed to push content to consumer devices, in similar fashion to that used by Amazon and B&N, although Sprint may be selling the Skiff reader in its retail outlets.

Skiff’s management consists of executives formerly with Sony, Intel and Microsoft, all with experience bringing e-readers to market. The team also has in place executives to develop content deals with the industry, with former executives from the Microsoft Reader business development group. Content is king in the digital media business, and while Hearst brings a big selection of media to the venture, the team will need to get into the e-book publishing segment to compete with Amazon and B&N.

The reader

Skiff may well be looking at building a larger tabloid-size reader format, as it was reported quite awhile back that FirstPaper was working on such a device with a flexible E-Ink color screen. The company is not providing details on any reader under development, however, so it’s not clear if the venture has shifted its focus since the FirstPaper plans were reported.

Skiff will find that any reader it produces to distribute its content will face plenty of competition by the time it hits the market. In addition to the previously mentioned Nook and Kindle, Sony already has a line of digital readers. As Paul Sweeting described in a report earlier this year, at least half a dozen other readers have already been announced for release in 2010, so it’s going to be a crowded field for Skiff.

The company must determine what type of reader is well-suited to provide a good reading experience for magazine and newspaper content, which is best displayed in a large format. Consumers are not going to find reading magazines on small screens to be enjoyable, and newspapers require an even larger tabloid size to have appeal. Existing readers have small screens, and tabloid content will not translate well to them.

The company has also indicated it will provide content that can be consumed using phones and computers, but this will run into the same problem as small dedicated readers. These screens can handle e-book content fine, although some consumers do not enjoy the reading experience that tiny screens provide. Tabloid-format content is not going to be well-received by anyone on these screens, so Skiff needs to bring a good reader device to market.

Advertising

Where Skiff is looking to really differentiate itself from the crowded e-reader market is through advertising. In addition to a content distribution ecosystem, Skiff will offer publishers the tools to include display advertising, as a way for publishers to generate additional revenue beyond content sales. According to Skiff:

Newspaper, magazine and blog publishers will also be able to sell and integrate display advertising alongside the content that Skiff delivers, adding value for consumers and marking the maturation of e-reading into a mainstream media type.

Skiff is already working with publishers, advertisers and ad agencies serving the print media to develop a system for delivering dynamic ad content to consumers. It has partnered with Nielsen and comScore to develop metrics that can accurately track consumer response to the digital ads. It’s merging web advertising techniques with print media content, and serving it up in digital formats. The intent is to intelligently serve ads based on the consumer’s location, and possibly previous content purchases, and to track consumer responses to the ads electronically.

This is where I believe Skiff’s prospects get dicey. Consumers are not going to be willingly subjected to ads after purchasing both a device and the content itself. There’s a reason that Amazon doesn’t sell ad-subsidized e-books: People won’t buy them, and Skiff is going to have a hard time selling this to the very publishers it is looking to attract. While print magazines and newspapers sell content with ads, the availability of digital alternatives, most without pages of ads like the print publications, may make this a hard sell to consumers.

The prospect

On the positive side, Hearst will no doubt bring its entire powerhouse publishing infrastructure to the Skiff venture, from its deep content library to the support of its partners and management team. Hearst has also recently announced participation in a consortium with Conde Nast, Time Inc., Meredith and News Corp. The unnamed venture intends to “build an industry-standard platform to present their work on the web, smartphones and electronic readers in a richer, more flexible and more lucrative form than is possible today,” as described in the New York Times. The initiative appears to fit the proposed Skiff model, but Hearst has not stated how this venture will interact with Skiff, if at all.

Regardless of whether the initiatives are related, Skiff is a decent attempt to put all of the parts in place to pursue the new media opportunity. With its solid technology partners, as well, Skiff should be able to produce a reader device that can leverage Hearst’s extensive content. The proposed distribution system, consisting of the online store and digital delivery, should make it easy for consumers to purchase and receive the content, an important part of the experience. Assuming Skiff is able to build a compelling online store for its content, it should have all of the ingredients to make a serious run in this business.

The advertising intentions are where Skiff’s plans look vulnerable. It will be hard to convince consumers to pay for ads in any form, and that makes it hard to sell to other publishers. It sounds as if Skiff is trying to keep hold of the old publishing system when it comes to ads, and this is likely to fail in the digital age of free web. If advertising is required to save print media, moving into the digital world will be like riding the rapids. Hopefully Skiff is up to the challenge, for Hearst’s sake.