Apple’s new subscription service is already putting it at odds with content providers that up to now have had unfettered access to subscribers using free apps available for download through the App Store. Chances are it’s going to be a while before the dust settles, and I wouldn’t be surprised to see a lawsuit or two pop up, either.
[ad#Google Adsense 300×250 in story]Apple on Tuesday unveiled its new App Store subscription service – first introduced with the launch of News Corp’s “The Daily” iPad application earlier this month. In a nutshell, Apple wants a piece of subscriptions for content accessed using App Store apps, and it’s making it harder for content providers to do an end run around the App Store in the process.
Apple says that apps which link to outside, subscription based content – movies, music, newspapers, magazines, comic book apps, and so on – are now required to offer subscriptions inside the app. Those subscriptions need to be “the same (or better)” (in Steve Jobs’ own words) than the deals you can get on the content provider’s Web site.
In return, Apple takes a 30 percent cut of that revenue. That’s the same chunk it takes out of app sales and everything else sold through the App Store. This brings those apps more in line with games and other apps already in the App Store, which augment existing content with in-app purchases that provide new levels or unlock new capabilities.
The new deal closes a huge loophole that’s existed ever since the first magazine and newspaper apps debuted on the App Store. Most of them cost nothing for the user to download, and therefore Apple makes nothing off them – after all, 30 percent of nothing is still nothing. And content providers have been happy to take subscription money from those customers without paying Apple a dime.
Apple’s not asking for any cut of the revenue content providers get from selling subscriptions to that content on their Web sites, but Apple’s making it harder for them to sell that content: apps can no longer link to external Web sites to sell content. And it’s not just subscription-based content, either – Apple’s making it harder for companies to do one-shot sales through their apps, too.
This is going to especially going to hurt companies like Amazon.com and Barnes and Noble, both of which offer e-reader software to enable users to look at Kindle and Nook content on their respective apps. It also probably explains why Sony’s e-reader software was recently rejected from approval from the App Store.
But it affects more than just those companies. Zinio has an iOS app – it makes electronic versions of many mainstream magazines available to iPad users. Marvel Comics has an app. Netflix. Hulu. And others.
More than the market can bear
Thirty percent is asking quite a lot of content providers, especially magazine and newspaper publishers that are already running on pretty lean margins, thanks to ever-dwindling advertising revenue. Apple’s not offering any option, except for the content provider to give their product away for free – or to charge a one-time premium for the app, which customers are wholly unlikely to pay, since they’re already accustomed to so much low-priced or free apps on the App Store.
I polled a number of content providers with horses in this race. None of them would talk on the record. Most of them didn’t return my calls. The absence of any communication whatsoever is telling – the radio silence is enough to infer that content providers with App Store apps are trying very hard to figure out what their next step is.
In fact, a report at PaidContent.org says that on balance, many publishers are relieved – they were bracing for the possibility that Apple was going to disallow any subscriptions outside the App Store at all.
But one business that’s speaking out very strongly against this is Rhapsody, the subscription-based streaming music service. They’ve thrown the gauntlet and said in no uncertain terms that Apple’s new subscription terms are unacceptable. In a strongly worded statement they call Apple’s new terms “economically untenable” and suggest that they may look for a court remedy.
I’m certain they’re not the last company that’s going to threaten to pick up and leave, or sue to get its way. Obviously, Apple has a crack team of attorneys itself – it’s impossible to consider that the company hasn’t already had antitrust experts look over the terms of the new subscription service.
Protecting customer privacy – and gatekeeping
What’s more, Apple is now inserting itself between the customer and the content provider. Customers will now have the option of sharing name, e-mail address and zip code with the content provider, but they won’t have to as a requirement of having a subscription.
Apple noted that it’s about protecting customer privacy. But as a side benefit for Apple, they also become the gatekeeper between the content provider and the customer.
This has already been raised as a big problem for some Mac app developers, who depend on direct communication with the customer for feedback on product quality and to drive new features. This sort of direct relationship with the customer is also the stock and trade of content providers – letters to the editor have been a customary part of newspapers and magazines almost since their inception.
Make no mistake – this is very, very bitter medicine for many content providers to swallow. The App Store is a huge wealth of demographic data for Apple; the company knows what you spend money on, what you like, what your neighbors like; when you buy things; what devices you buy them for.
Protecting customer privacy is Apple’s public mantra, but it has its own motivations for wanting to keep customer data itself too.
But make no mistake, the customer benefits from Apple’s new plan, too. App Store users will now have access to a subscription page where they can more easily track what they’re spending money on. That’ll come in really handy for a lot of people that maintain subscriptions to a variety of publications or services, and it’s functionality that will help to distinguish the App Store in the long run.
While the content providers have a lot to complain about with Apple’s new service, the company comes out squarely on the side of the angels when it comes to the customers – and that might be its ace in the hole.
Some converts emerge
Obviously, none of these issues were enough to get in the way of Rupert Murdoch’s News Corp. launching its $30 million experiment, “The Daily,” on the iPad, and the case can be made that if a media giant like News Corp. can take the plunge than others should too.
In fact, others are already stepping up to the plate to give the new subscription service a go. Popular Science has emerged as one of the first monthlies to embrace the new service, for example. Nylon and Elle, two popular fashion and lifestyle magazines, are also taking a chance. Future’s T3 technology magazine will make the switch, too.
My alma mater, Macworld magazine, has taken a different approach. Their iPad app, the Macworld Daily Reader, is free to download and use. It links back to content on the Web site, driving readers (and thus increasing page impressions) back to Macworld.com, and has an advertising sponsor as well.
There still ways for content providers to make money on the App Store. That 30 percent cut is more than some of them will be willing to bear, and as in the case of Rhapsody, they may very well look at their bottom line and ultimately decide that the App Store isn’t the right environment for them. If iOS app users end up losing access to content they want, then it’s a net loss for the customer. Hopefully it won’t come to that. I expect that it’ll take a while for this to shake out.
Apple’s subscription service news has been anticipated by the industry for several months, so it’s no surprise and absolutely no coincidence that Google has unveiled its own alternative, called Google One Pass. Google One Pass is being offered as a one-stop subscription service for publishers of content on Google devices and Google-enabled Web sites – you enter your credentials and you’re able to read the content you’ve subscribed to on your Google Android-equipped smartphone or tablet. All the transactions are handled by Google Checkout.
Seemingly in answer to the early criticisms some content providers have lobbed at Apple, Google noted that One Pass lets publishers “maintain direct relationships with their customers.” Google’s setting out from the start to differentiate itself from Apple by taking itself out of that equation. What’s more, Google’s only taking 10 percent of the revenue. That’s still an enormous amount compared to the service fees publishers pay to credit card companies to process their transactions, but it’s still much better terms than Apple offers.
Google says One Pass was developed for publishers of magazine and newspaper content, but doesn’t discount that it could be used for other purposes. I doubt we’ll see companies like Amazon.com and Barnes and Noble flocking to support it, since Google’s in direct competition for them for e-book users, but it’s entirely conceivable we’ll see some of the other multimedia delivery services currently on the App Store begin to experiment with Google One Pass as well.
Will it be enough to swing the pendulum in Google’s favor? The company’s starting out of the gate with a pretty modest list of partners, but then again, so is Apple (and there’s at least some overlap, in the case of Popular Science).
Ultimately, time will tell – and Apple is giving App Store developers until the end of June to get their ducks in a row. Between now and then, we wait and see who’s on board, and who just can’t or won’t make it work.