Apple’s 30 per cent subscription charge to challenge legacy media companies

Media companies are pondering their digital sales strategies after Apple Inc. announced it will take a 30 per cent share of all content sold through its app store’s new digital media subscription service. Observers say the sector’s new entrants can plan around the charge—but it’s not very good news for legacy media. “It’s a good thing for new entrants because you now have this great new subscription platform. If you don’t have the legacy issue of figuring out how to change your price or deal with this 30 per cent, you can design a business model from the ground up with this in mind,” Raja Khanna, co-CEO of Glassbox Television Inc., said in an interview. This month, Apple unveiled a new service that allows publishers of content-based applications to sell digital subscriptions through Apple’s app store. Until now, applications for news services or other publishing couldn’t be sold through Apple on a subscription basis. But in the announcement, made Feb. 15, Apple said it will take a 30 per cent share of subscription sales. The service provides a new digital revenue platform for magazine, newspaper, video and music publishers that use apps to connect to Apple’s extensive network of app store customers and streamlined billing system. Digital subscriptions sold through a publisher’s website—as opposed to through Apple’s app store—will not be subject to the revenue sharing fees. “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,” Steve Jobs, Apple's CEO, said in a release. Independent telecom and media analyst Carmi Levy said a central change to Apple’s service is that publishers can no longer link to their own website through applications. “Up until this announcement, publishers could link to their own websites from within an app and encourage users to buy content from their site rather than through the app store,” Levy said in an interview. But Levy said Apple has now closed this loophole. Levy added that publishers will now have to decide whether they are willing to pay the 30 per cent premium in exchange for the broad distribution that the app store offers. “It is a popular platform. Everyone reads stuff on these devices. If you are a publisher, you want it to be easy for potential customers to consume and pay for your content. There is no doubt that an in-app purchase is the easiest way to monetize that kind of behaviour,” Levy said. Other developers offering subscription services are considering building iPad-optimized websites to circumvent Apple's apps and its 30 per cent fee. Khanna said he suspects most users will choose to make purchases through the app because of the ease of purchase. “One of the things we love about the iOS platform is how easy it is. In my opinion, more people will start subscribing to these on the iOS platform even though there may be another option and that means 30 per cent to Apple,” he said. Publishers are free to set the price and length of subscriptions, with options for weekly, monthly, bi-monthly, quarterly, bi-yearly and yearly subscriptions available, but they are required to offer the same rates both inside and outside of the app. The move restricts the temptation of publishers to sidestep Apple’s fees by offering special prices online. Apple’s announcement follows the launch this month of The Daily, the first subscription-based news service exclusive to Apple. Published by Richard Murdoch’s News Corp., The Daily is an interactive newspaper optimized for the iPad and sold only through the iTunes store. Apple was involved the development of The Daily, which is separate from Apple’s digital media subscription service. Khanna said that Apple’s revenue model will be most painful for companies that have an established subscription business where, right now, Apple is not taking 30 per cent of their revenue. “With new services that are being developed now, people will start taking this into account and it will be a new way in which new entrants will have an advantage over the incumbents,” he said. Major news publishers such as the Financial Times and The Wall Street Journal offer digital subscriptions, and a collection of news services, including The Washington Post, the Associated Press, and USA Today recently launched a personalized online subscription service called Ongo, starting at $7 US per month. On Feb. 16, one day following Apple’s announcement, Google Inc. unveiled a digital media subscription app service for its Android platform. Called One Pass, the system charges publishers 10 per cent of revenues earned from their subscription sales. Google’s One Pass allows publishers to control how users can access content and to set their own prices. Subscriptions can be sold at any length and enables metered models, where publishers can provide limited content or a certain number of visits for free and charge frequent users. Wendy Bairos Rozeluk, a spokeswoman for Google in Toronto, said One Pass evolves publisher networks online. “ new revenue stream and it’s really up to the publishers to decide how this can best be used for them,” she said in an interview. “We are always looking at different ways to evolve and work with the media and publishers and testing new ways as they are developing different business models,” she said. The One Pass also allows for streamlined payments through a payment portal called Google Checkout. Rozeluk could not say whether the One Pass rate would remain at 10 per cent past its trial stage. “It’s still new and it’s something that some people are testing, so for the time being it’s difficult to be specific about how we are going to move forward,” Rozeluk said. Rozeluk confirmed that Montreal’s La Presse, along with several international newspapers, have developed subscription service apps for One Pass. She said La Presse is working on the development of its application before it goes live. Levy said the timing of the launch of Google’s One Pass system was no coincidence. “What Google is doing is positioning itself as a more open, just as popular, easier to deal with alternative to Apple,” Levy said. La Presse, as well as Apple Canada Inc., Macleans, Postmedia Network Inc., and The Globe and Mail, did not respond to requests for comment for this story. asmith@thewirereport.ca

Apple’s 30 per cent subscription charge to challenge legacy media companies

Broadcast | February 25, 2011

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