• by Erik Sass  @eriksass1, March 2, 2009

Undeterred by the ongoing economic meltdown, Hearst Corp. is preparing to introduce a new electronic reader with the goal of reviving and sustaining magazine and newspaper readership, according to the Web site of Fortune, which first reported the news last week.

The new device from Hearst is expected to debut sometime later this year. Hearst will encourage other publishers to license the technology so they can deliver content, too.

At first glance, Hearst's still unnamed e-reader would seem to compete with Amazon's Kindle product line, which recently saw the launch of Kindle 2. But it seems the design of the Hearst product makes it more suitable for reading magazines and newspapers than Amazon's book-focused device.

People who are familiar with the project say the device is light, with a large screen to make digital reading as comfortable as the print products. It's about the size of a piece of paper, versus the Kindle's six-inch screen.

If successful, a widely adopted e-reader could someday replace print magazines, saving up to 50% of the expense involved by cutting paper, printing and delivery costs. The next generation of digital screens, including Amazon's Kindle and Hearst's e-reader, save power by displaying changeable text and images with electronic ink developed by MIT.

Writing on the Web site of Esquire, a Hearst magazine, Editor in Chief David Granger was hopeful that new electronic reading devices would save not only the beleaguered newspaper and magazine industries, but reintroduce people to the pleasures of reading in general: "As electronic readers improve, as they add graphics and design and, eventually, color, even more people will opt for the more sustained, contemplative experiences more often."

But the proof of the Hearst e-reader will be in the advertising pudding, and here magazine publishers face significant obstacles.

If they opt for interactive formats, they can offer advertisers attractive cost-per-action fee structures, which only charge the advertiser when the reader actually engages with a banner or text ad. But as the experience of magazine and newspaper publishers online has illustrated, interactive advertising has proved to be far less remunerative than its print predecessor.

It's hard to get a handle on online revenues at big magazine companies, especially when they are privately held, like Hearst. But publicly traded companies like Time Inc. may give some idea of digital contributions to a big publisher's bottom line. At Time Inc., online revenues were just 10% of total advertising revenues of $2.45 billion in 2008. At Martha Stewart Living Omnimedia, they were about 12% of about $90 million in total ad revenue.

Unless they can convince advertisers that e-readers are a fundamentally different and more effective ad medium than online, prices for ads on e-readers will probably be constrained by the existing online price landscape, which sets the bar low. Likewise, it's unclear why consumers would pay extra for magazine content delivered to an e-reader as opposed to content available on a desktop or mobile device.