I bought my 3G iPad about two weeks ago and have been playing with it every day since. That’s what you do with it. Play with it. It’s a fun toy.

But is it a revolutionary way for the publishing business to survive? Many pundits seem to think the answer to that question depends on how much and whether readers will pay for content on the device–but they are asking the wrong question. The right question is about advertising.

Most of what I’ve read so far is that the iPad will revolutionize the publishing world because it will change the way readers interact with “magazines.” See “Magazines look to iPad for new life.” There is this hope on the part of traditional magazine publishers, that millions of readers will pay $5 for one iPad edition of the magazine. But why would readers do that when they can subscribe to the print edition for $14.99 for a year? Apparently, over 72,000 readers bought the Wired iPad app but my guess is that much of that is because of the novelty of it, and readers won’t regularly pay that kind of price for a single issue.

So the early reader pricing is bound to change. I just don’t think we are going to see streams of new revenue from readers who will pay top dollar for an iPad app. Just check out the comments from readers who bought the Wired and Popular Science iPad apps–the biggest single complaint seems to be the price. Unless publications start holding back content on the web, and only releasing it on the iPad app, why should readers pay a lot more when they can jump to the web site on the iPad anyway?

So if new user generated circulation revenue from the iPad is not the savior for the magazine industry, what is?

The real business question is all about advertising revenues. Will newspaper and magazine iPad editions generate new and significant ad dollars to publishers? In order for that to happen, iPad ad pricing will have to be much more lucrative than online advertising, where the CPM, the cost per thousand, is notoriously low because of the vast and almost unlimited inventory of ad slots on the web. In short, will advertisers only pay the online modest CPM or will they pay something closer to the print CPM (which is where most of a magazine’s profit resides)?

The early signs are positive. USA Today, for one, is charging much higher rates for advertising on its iPad app than for its online web site. “Jason Fulmines, director of products for USA Today owner Gannett, said the publication charges Mariott about $50 for every thousand ad impressions, while the going rate on the newspaper’s website is less than $10.” That’s still not as high as the print CPM, which runs over $100, but it’s a major step in the right direction, from the perspective of publishers. The theory seems to be that iPad users will spend more time with the publication, pay more attention to the advertisement, and that the advertiser has the potential to be more creative with its presentation. There is also the hope that the inventory of ad slots will be more limited, but as more and more publishers develop iPad apps, I’m not sure why that would remain true. I’m not overly optimistic but willing to wait and see.

In order for the iPad to be the financial panacea publishing execs yearn for, advertising pricing and reader interaction with iPad based advertising will have to grow, improve and differentiate itself from web advertising. That’s the key, not how much readers will pay for content. That’s where the potential pot of gold lies.