Tuesday, February 15, 2011

The gotchas in Apple’s app-subscription plan

Theoretically, it is possible for publishers to hang on to 100% of their revenues when they sell subscriptions through a new service launched today at the Apple iTunes Store.

Realistically, however, publishers are more likely to continue forking over 30% of most of their sales to the House that Jobs Built. Accordingly, the House in most cases will continue to win.

This entirely unsurprising prospect results from a close reading of the brief announcement that Apple is offering a new subscription service at the iTunes Store to publishers of newspapers, magazines, audio and video.

For content producers eager to get paid for producing new iPhone and iPad apps, this announcement may be enough to encourage them to take the plunge. But the brief press release describing the program contains some significant drawbacks for publishers.

From the press release, what we know is this:

1. The service will let publishers set the price and the length of a subscription (from a week to a year).

2. Registered customers can buy a subscription through their iTunes account with one click.

3. Apple gets 30% of the revenues for every subscription bought at iTunes but publishers can keep 100% of the revenue for any subscription they sell on their own sites.

4. The publisher gets to know the name and email address of the customer only if said customer elects through the app to provide it to the publisher.

From the point of view of Apple and the customer, this admittedly works pretty well. But there are some pretty serious gotchas for publishers:

:: While Apple will let publishers keep 100% of revenues if customers buy subscriptions on the publisher’s website (see No. 3 above), the reality is that most people will continue buying subscriptions through the app. This means Apple will continue in most cases to get a 30% cut of most subscription revenues.

:: If consumers predominantly buy subscriptions at iTunes, publishers will learn the identity of only the consumers who voluntarily disclose their names (see No. 4 above). While it is bad practice for any business not to know and have a direct relationship with its customers, this represents big-time heartburn for newspapers and magazines who want to count those subs in their audited circulation numbers. Here is why:

Faced with years of sagging readership, Newspapers changed their circulation rules last year to make it possible for them to take credit for subscribers on every print and electronic platform. If publishers cannot identify their iApp customers, it will be difficult, if not impossible, to prove their cross-media reach to advertisers.

Though the new Apple system is capable of putting some welcome change into the piggybanks of participating content producers, the new system appears to leave publishers at a distinct disadvantage to the House. Which clearly is how the House likes it.


Blogger mgjr said...

From a free weekly chain point of view this is net plus. We can start rolling back the notion of everything being free. Say we charge a very low rate, say something like $1 per week or $20 for a year. That is not a lot of money, but it does get the users used to paying and if we couple that with iAds we have additional incremental revenue for a one time cost of development. The development costs for apps keeps going down. We are going to need multiple streams of revenue to make up for the print revenue and systems that don't increase cost but bring in money are always welcome.

11:18 AM  
Blogger The Writers Fancy said...

It seems as though newspapers and magazines just can't be satisfied with anything they don't completely control - even though complete control has resulted in near complete destruction of their business.

I, for one, would rather publishers not have my name (and I'm not so sure ABC rules really require it). Have you ever been solicited by a poorly-paid lamebrain CSR for a subscription to the local paper?

Not having to print more than saves the 30 percent Apple takes for creating a thriving ecosystem.

11:37 AM  
Blogger Bernard Zimmermann said...

The publisher's problem is solved if they make their offer a bit cheaper than apple.

3:42 PM  
Blogger Marc said...

I understand the concern about not having the subscribers address, but the number are verifiable as is there country so I am really not sure it is going to make a big difference in their ability to get advertising.

I really do not understand the problem of giving 30% of revenue to Apple- How much do magazines now spend trying to gain subscribers? As an producers of 42 Apps I know that I sell a great deal of product just by being in the App store I am sure that magazines and newspapers will do even better.

Finally Apple has finally broken the mold that everying electronic should be free. It should not be too expesnive but no longer free, that is a big step forward

6:21 PM  
Blogger Steve Ross said...

The publishers and Apple seem to be flying blind. I've done a lot of direct mail work with publishers over the years -- especially in the 1980s. In the 1980's I was also particularly involved with newsstand sales. Among my biggest projects (working with Dan McNamee and David Ball) was a revamped DM campaign for Consumers Union, an ultra-efficient newsstand copy-allocation system for People Magazine, and a "Publishers Clearinghouse" -type project for business mags with American Express.

It never would have occurred to us to do ANYTHING without constant testing. When I read quotes from major publishers saying "we think this" or "we think that" it just rubs my fur the wrong way. Think? Don't you KNOW? You test the price points, the selling propositions, the promotional language, the time of day or time of month or time of year you fly a promo. You test EVERYTHING.

How on Earth does anyone know whether a well designed promo piece in subscribers' email will be outpulled by the app store?

What happened essentially is that Apple bowed to publisher pressure (and took note of the sharp falloff in 1-issue app sales) to allow annual subscription sales through the app store, but insists on a 30% rake-off for doing very little work. There seems to have been almost no collaboration with publishers, and I'm not sure many asked (one of my clients did, and was rebuffed in a way that suggests Apple could be subject to antitrust prosecution, but by the time such a thing happens, the more open Android system will be on zillions of tablets, too, and Apple will have to bend anyway).

Bottom line: This nonsense is temporary, but it is delaying rebirth of publications. News organizations should be reporting the hell out of these issues. But even if they still had reporters, I'm not sure they would. There's always been a tendency to slam Microsoft but give the nice over-charging folks at Apple a bye.

6:33 PM  
Blogger Mike Donatello said...

Steve Ross said, "The publishers and Apple seem to be flying blind.... It never would have occurred to us to do ANYTHING without constant testing."

Welcome to the peculiar market intersection of Apple and newspapers: a company offering a product (i.e., subscriptions) whose success would be mere icing on an already-fat cake, and an industry that has always thought it knew customers' needs better than customers themselves. Why test when you either don't care or think you know the answers already?

9:39 AM  

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