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Summary:

Apple is reportedly talking with a number of newspaper and magazine publishers about an iTunes-based newsstand that would allow them to offer subscriptions to readers. But while this seems like an appealing offer, publishers should be aware of how much they stand to lose as well.

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Both the Wall Street Journal and Bloomberg News have confirmed earlier reports that Apple is working on a “digital newsstand” venture that would handle subscriptions for newspaper and magazine publishers through the iTunes store. To some publishers, who are starved for revenue and see the iPad as a route to the promised land of paying customers, this probably sounds like a great idea. But they should be careful what they wish for. Is gaining a revenue stream worth giving up control over their relationship with their readers — and advertisers?

According to the WSJ, quoting “people familiar with the matter,” Apple has talked to publishers including Time Warner Inc.’s Time Inc., Condé Nast, News Corp., and Hearst Corp.’s newspaper and magazine divisions about selling subscriptions through an Apple system, and Hearst — publisher of Oprah Winfrey’s magazine, as well as Esquire and Cosmopolitan, among others — is said to be interested. The WSJ report said that the print subscription service could be announced as early as October or November. Bloomberg’s report is fundamentally the same, and quotes Roger Fidler, program director for digital publishing at the Reynolds Journalism Institute at the University of Missouri: the same source quoted by the San Jose Mercury News in its report about the talks last week.

It’s not surprising that Apple would want to extend its digital control to newspapers and magazines, having more or less sewn up access to the music industry and made an advance in movies, TV episodes, books and games. Publishers are bound to be interested; for the past several years at least, newspaper owners in particular have been dreaming about an “iTunes for news” that would funnel money into their pockets in the same way it does for the major record labels. The iPad and a digital newsstand seems to have the potential to realize those dreams once and for all. But should publishers take the bait? The short answer is that it depends how desperate they are.

As anyone familiar with the record industry knows, a deal with Apple would be the quintessential Faustian bargain. Have the labels made money from iTunes? Sure they have, and possibly more than they would have without it, but they make what Apple says they can make, and they price and offer their music in ways dictated by Apple. Even the attempt to offer flexible pricing for older music from the “back catalogue” took years of negotiations. And the company exercises a similar iron grip on what apps appear in the iTunes store, how much they cost and what features they can have.

It’s not just the 30-percent chunk of the revenue that Apple would take off the top that newspapers should be concerned about, either. For newspapers, access to subscription databases is about the only proprietary information they have when it comes to showing their value to advertisers. At this point, it’s not clear what information about subscribers Apple would provide to publishers, if any (although the San Jose Mercury News report says the company has proposed an opt-in process that would ask subscribers if they want their information passed along). That would effectively leave Apple in control of the relationship between a newspaper or magazine and its readers.

The bottom line is that for newspapers and magazines — desperate for any port in the current online storm — the potential for a quasi-guaranteed revenue flow from Apple may just be too appealing to resist, as it was for record labels when iTunes first came along, despite the potential for having their business dictated to them. Once they’ve cut a deal, they could wind up in the same place: sitting in a corner counting their digital pennies, while Apple builds the business that they should have built themselves.

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Post and thumbnail photos courtesy of Flickr users Zarko Drincic and Yan Arief

  1. Use of “Faustian bargain” = WIN

    I’d also add the specter of DRM raising its ugly head. Dinosaur media will instantly regress to wanting their content “defective by design” – If you’ll remember that was the ONLY reason the big music companies agreed to Apples terms circa ~2002 ( eventually dropped in 2007 ).

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    1. That’s a great point, Todd. And thanks for the compliment — and the comment.

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  2. Well the points of 1) loosing 30% of the revenue, 2) not being in full control of features and costs, 3) and being dictated by Apple if it comes down to what sort of content is allowed, are already mentioned here. So I dont have to go into that… But what about all those users that do not buy an iPad but go for another tablet? What are publishers going to do with those potential customers? Create another newsstand for all those different app stores/operating systems? Crazy!

    Apple is creating a hype again and if publishers are smart enough they do not jump in on it but think about the near future – when there will be more than one decent tablet on the market.

    Instead of going for the vendor and device lock-in model publishers should use the capabilities of the web. Instead of building native apps for 1 or 2 devices they should go full on web.

    All those upcoming tablets come with modern web browsers that support HTML5 and CSS3. For news and magazine publishers these “new” technologies offer great possibilities to develop outstanding web based applications with a native look and feel and an appealing user experience!

    At Widescript.com we are already doing this for the educational market. We’re building a device and app store independent platform for students to study interactive educational content like e-books and articles. Everything is based on web standards and the “web app” looks, feels and acts like a native app. But we, our students, teachers and publisher are in full control of what is going on on that platform. Plus… we are not loosing 30% of our revenue. Instead we can charge our customers a little less and still make more than if we would be selling through the apps store. And let’s not forget as we are building for the web – we’re available on mobile phones and desktop pc’s or laptops as well. Freedom of choice for every user/customer to choose the device he wants to use!

    As we are building the educational e-reading platform we are experimenting with more interactive and magazine/paper like features. So if there are any publishers that do not want to get locked-in by Apple but are looking for other ways of getting their content to tablets please get in contact!

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  3. Blogs like this one have a vested interest in seeing newspapers and magazines fail. But the truth is, old media will make a fortune again on this and, in an app world, blogs like this on the web will be forgotten.

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  4. Re: music labels counting pennies. You can’t really compare the music business to the news business. There is a new product every morning with news. There is a new product once a year with a music group. The pennies add up a lot quicker in news.

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  5. Don’t periodicals use third parties to sell subscriptions to their paper versions. Why would this be different?

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  6. I think you really nailed the trade-off. Much depends on the specifics of the agreement with Apple and how the arrangement fits into a broader strategy.

    If publishers utilize iTunes as part of a larger effort to leverage new means of distribution, while simultaneously taking a hard look at operational costs and trimming down, it could work.

    If, however, they view iTunes, and iTunes alone, as their silver bullet, long term success is less likely.

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  9. [...] became obvious when some media outlets started negotiating with Apple about a subscription-based newsstand — a service the company is expected to announce tomorrow, as part of the launch of Rupert [...]

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