Is Apple Shooting Itself in the Foot?
Apple officially announced their anticipated subscription model. For publishers, it doesn’t look pretty. Quite simply, Apple is looking to take a 30% cut of all subscriptions that go through Apple. As Steve Jobs put it, “Our philosophy is simple—when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing.”
Make no mistake; this is a daring move on Apple’s part. The iTunes App Store has always been attractive to publishers and developers given Apple’s immense market share (at one time the sole player) in the smartphone market. Yet this demand cuts right into the profit model for publishers, especially that of the print industry, which at one point was considered the iPad as a potential lifeboat for a failing and dated industry. The print industry looks to subscriptions for two main reasons: the revenue generated from subscribers and the personal information collected. Yet, Apple’s move potentially denies publishers both items. If it goes through Apple, Apple collects and keeps.
This thirty percent cut isn’t anything new – it’s been there for music, movies, and apps. Still, the reason why Apple has been able to get away with this demand is heavily due to its dominant position in the space. In fact, in response to yesterday’s announcement, several publishers are considering taking Apple to court using Apple’s marketing position (and perhaps monopoly) as an argument against the company. While competitors are coming to market, Apple still retains its place on top. Question is, for how long? Can one truly afford to not work with Apple?
Apple is facing an increasing number of competitors in both the smartphone and the tablet space. Apple’s pressure on publishers may be just enough to create new partnerships between developers and publishers with these up and coming players. Both in Google’s Honeycomb and HP’s TouchPad announcements, publisher deals (CNN, Sports Illustrated) were announced. The big difference with these companies – unlike Apple, is that their main sources of profit lie not in the in-device marketplace, but in the advertising opportunities (for Google) and the hardware sales (for HP and other manufacturers). Thus for Google, RIM, HP, and Microsoft, it’s less about making publishers pay up and more about incentivizing them to join in to make their devices more attractive and consumer friendly.
Apple has drawn a clear line on the sand, but developers and publishers are left with a difficult choice. Give in to Apple’s demands but enjoy a vast ocean of content-hungry users or make a stand and risk it with a not-quite-fully-developed competitor? It’s quite the prisoner’s dilemma – taking a stand against Apple will only work if many (if not most) do so together. Otherwise, as NBC had learned (the hard way) a few years back, quitting the iTunes store results in missing out and inevitably, an embarrassing return. It’s a question many players – Amazon, Netflix, Hulu (Plus), CondeNast, NYTimes, Sony, Warner Bros., etc. will have to ask themselves in the coming days.
*Update*
Perhaps in response to Apple, Google has announced “Google One Pass,” which allows publishers to keep 90% of their tablet subscription revenue. Even more importantly, publishers are able to access and keep that valuable consumer information Apple is denying under their rules. All the pieces are set for the war over the future of digital content.