Digital magazine store and newsstand Magzter has raised $10 million in investment as a part of a Series B round of funding from publisher Singapore Press Holdings and Kalaari Capital. Magzter claims 16 million users from 200 countries, and a catalog of thousands of magazines in 30 global languages. They have tie-ups with Hearst, Conde Nast, Newsweek, Bloomberg, Haymarket, Edipresse and Singapore Press Holdings. In India, they have Handygo’s app Rockstand as competition, which has similar Indian publishers on board.

Magzter is based in New York, and was founded by Girish Ramdas and Vijayakumar Radhakrishnan. In India, Magzter competes with the likes of Handygo’s Rockstand, while at a global level, it will compete with the likes of Googles Newsstand and Apple Newsstand.

Our Take

This is possibly a defensive move from Singapore Press Holdings: it helps keeping another mode of distribution alive. For Kalaari Capital, this is probably a case of good money chasing bad: they had invested in Magzter in 2012.

Here’s how we see the space that Magzter is in:

1. Magzter will face massive competition from Google and Apple’s own apps for magazine distribution, which will always have a potentially larger distribution by virtue of being native to the operating systems that they’re embedded on. Think Flyte versus iTunes.

2. Ask yourself: do you read a story or do you read a magazine? A magazine is read because it’s a habit or an impulse. The decline in the magazine ecosystem and the fragmentation of content online has meant that users are no longer used to reading magazines, and it’s a battle for relevance that many small publishers will lose unless they market themselves. From an impulse perspective, discovery becomes key, and while a newsstand is necessary, discovery of magazines on a digital newsstand is contingent on a users need for the newsstand in the first place. It’s essential for Magzter to build its base, and for magazines to then claim a fragment of that.

Apps like Flipboard, Pulse and Zite, as well as the open Internet will also be substitutes for businesses like Magzter, with a substantially larger base and far greater visibility and consumer appeal.

3. Monetization for Magzter will come not from subscription fees, but possibly carriage or promotion fees: that they charge magazine publishers a fee for listing and/or promoting their magazine. The other alternative is an advertising overlay on the basis of a revenue share with a publisher, which is what Newshunt did. Free+paid trumps paid in terms of usage, but it’s tricky in terms of revenues, and Magzter does well by offering free story samples, and allowing users to subscribe.

All these options are contingent on Magzter building and maintaining a large monthly-active user base, and in this case, they’re competing against the open Internet. It will be tricky for Magzter to charge a carriage fee, given that magazines (in India) are struggling for survival offline, and struggling for relevance (and advertising) online.

4. Lastly, for a publisher, Magzter is just one way of ensuring consumption, and a subscription platform is tricky business: it works mostly if you put your existing content behind a paywall on the open Internet, and look to monetize apps. But this hinders discovery. A New-York-Times or Financial-Times style paywall might work best for publishers, coupled with the option to subscribe to magazines via Magzter. Magzter would be better off adding a paywall enabler and app publishing service provider for publishers online, apart from a newsstand business.

Magzter should probably look at what Newshunt is doing: it’s built a substantial user base with free news content from Publishers, licensed on a revenue share contingent of mobile advertising, and has now launched paid ebooks; Ver Se got lucky buying that company, given that their subscription based SMS alerts business would have been mostly killed by TRAI’s VAS guidelines.

Still, Magzter’s two biggest battles are: battling Newsstand apps from operating systems, and more importantly, battling the change in consumer behavior.