It could be due to the fact that most periodicals are profitable because of ad revenues and not subscriptions. This is such a niche that it may have been difficult to acquire enough advertisers to produce the kind of ROI they were looking for. This would be particularly challenging because most companies that would like to advertise in a magazine aimed at this demographic would be publishers of competitive products.
If I had to guess (and that is all this is, a guess), I would speculate that the cost of publishing Dungeon and Dragon magazine where considered a marketing expense. The goal was to promote gameplay and sell new product. Any revenue they made either helped offset the cost or was just considered gravy.
With DDI they can make the same marketing push but cut their expense drastically.
Um....You are aware that Paizo was paying WotC to publish those magazines? Far from being a source of expense, the magazines were a revenue stream.
When WotC decided to go DDI, it seems likely that offering the only official content as part of the DDI would be a smart move, and hence the online magazines. Not only that, but WotC knew that the Paizo magazines were doing better than they had been when WotC had produced them, so they allowed Paizo to complete their current AP in exchange for an agreement from Paizo not to produce a magazine for a set period of time. Hence the reason that the initial Pathfinder APs were emphatically not in magazine format, even though they used a subscription model.
Selling DDI subscriptions entails less risk, less outlay, and more profit than selling books.....or even minis. And all of the decisions around the release of 4e point directly toward the DDI.....including those that split the community.
Frankly, it might be better (read: more profitable) for WotC to offer a DDI that serves all editions than it is to sell more books of any one edition. But this is only true for TSR-D&D so long as you
need the DDI because the books aren't out there, because the systems are simple enough that you don't need character builders, monster builders, or encounter builders to play those games. This could even come in the form of seperate initiatives so as to avoid confusion (which is where this idea could lose revenue!). Older editions might even have a higher price-point under such a scheme.
Or, at least, that is my understanding of it.
RC
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