Slowly but surely, Apple is trying to convince more media companies to play in its sandbox, and the latest move is an iBooks-style digital newsstand for the iPhone and iPad. As part of the raft of new features and services it announced at its annual Worldwide Developers Conference on Monday, Apple launched Newsstand — a single interface for all of a user’s subscriptions to newspapers and magazines. Whether the new offering will convince more publishers to sign up and hand over 30 percent of their subscription revenues to the company remains to be seen.

Apple has been working on a single digital newsstand for newspapers and magazines since last year, but it ran into some significant roadblocks with several publishers. One issue was the control over subscriber information: Some media companies didn’t want to have to ask their readers to give up personal details, but they wanted direct access to that info the same way they have it with print subscriptions —since it is a crucial part of their sales pitch to advertisers. Apple stood firm, however, and eventually a number of mainstream publishers started to cave in to the company’s demands.

As my colleague Darrell Etherington has noted in his coverage, Condé Nast has recently signed up to offer digital magazine subscriptions for a number of its properties, including Wired, Glamour and Vanity Fair, and Hearst (publisher of Esquire) has also signed up to offer subscriptions (Time Inc. is one of the few remaining holdouts). And contrary to what some publishers feared, a surprisingly large proportion of users seems to be fine with providing personal info through an app.

With the launch of the new Newsstand, all of a user’s newspaper and magazine subscriptions will be available in a single interface, the same way that books are available through the iBooks interface. The design of Newsstand even looks the same, with the wood-style virtual shelving similar to a bookstore or magazine store.

Newsstand completes the transition of magazine and newspapers away from just being apps in the traditional iTunes app store and toward actual subscriptions in the home. When publications were first offered on the iPhone and iPad, users had to pay for each individual issue of a magazine and then download it separately. Now, with Apple’s support for in-app purchasing, subscriptions for Wired or the Daily or the New York Times will automatically be updated every month without requiring users to do anything.

The biggest issue for publishers, however, is that dealing through the Apple ecosystem still means they have to give Apple 30 percent of their subscription revenue. Some publishers were getting around this by sending users to a website outside their app in order to sign them up for a subscription, but Apple closed that door last year by requiring any publisher who charges for content to do so from within the app as well as outside it.

Condé Nast and Hearst seem to feel that giving Apple that kind of control over their access to a subscriber base — not to mention 30 percent of their revenues — is a fair trade. But is that a sign of how compelling Apple’s offering is or how desperate publishers are?

Post and thumbnail photos courtesy of Flickr user Zarko Drincic

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The Telegraph has reportedly accepted Apple’s terms for digital subscriptions, which allows Apple to take 70 30 percent of all revenues made through in-app purchases and maintain exclusive access to customer information, unless the customer opts to share their info with the publisher too. Hearst didn’t specify what terms it agreed to with Apple, but did reveal that it was “comfortable with both the cut Apple will take, and the amount of customer data it would have access to,” according to the Financial Times.

Hearst’s Vice-President of Public Relations, Jessica Kleiman, made remarks that suggest some amount of negotiation was involved in the process:

It’s an equitable and fair deal for both sides. There was a lot of back and forth and we feel it’s a fair agreement in terms of sharing the data and owning the customers together.

While Kleiman seems to want to suggest there was give and take in the process, Apple is famously stubborn when it comes to the terms of its App Store agreements, and I find it highly unlikely that the company gave any ground regarding either its revenue share, or how it would handle customer information. More likely, Hearst realized that the only terms Apple had on the table were both “fair” and “equitable” in order to continue to reach the huge potential audience that is the iPad user base.

Hearst is the first major magazine publisher to come on board with Apple’s subscription plans. Time Inc. announced a deal which would allow print subscribers of its magazines access iPad digital editions for free, but it didn’t announce in-app subscriptions at the time. I suspect that deal is already made, and why Apple allowed the print subscription carry-over to begin with, but neither company has said anything to that effect yet. Hearst, unlike Time Inc., has no plans to offer iPad editions free to existing print subscribers, since it wants both sources to act as separate revenue streams.

Publishers may be privately outraged by Apple’s subscription terms, but they’re also slowly but surely accepting the agreement. Apple has all the negotiating power in this relationship, so don’t expect Hearst to be the last to succumb, either.

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Apple is catching a few flies with vinegar, if the slow but steady stream of magazine publishers who’ve opted to accept the company’s new in-app subscription rules is any indication. On Monday, Bloomberg’s Businessweek joined the iPad coalition of the willing, adding its name to a roster that includes the likes of Maxim, Elle and Popular Science.

Why are publishers signing on? One big four-letter word followed by a number comes to mind: The iPad 2 has been, by all accounts, a massive early sales success, and Apple still seems to be having trouble meeting demand. It’s no coincidence that Apple scheduled the mandatory change to its own in-app purchasing system for subscriptions to come into effect June 30. Between the time the new policy was announced and when it goes into effect, we’ll have seen the launch of the iPad (a hit at home and abroad), Apple’s quarterly results (sure to impress and likely show strong tablet numbers), WWDC sold out in no time at all, iOS 5 likely unveiled at WWDC, and even more details about the iPad’s selling success at the WWDC keynote.

Still, the move to accept Apple’s terms — which include a 30-percent share of all subscription revenues gathered through apps sold in the iPhone-maker’s App Store — hardly represents a universal groundswell of support from the magazine industry. In fact, many major publishers are clearly still holding out, possibly in the hope that they can convince Apple to relax or modify its App Store policies regarding in-app subscriptions and the sharing of customer information. But despite noteworthy holdouts like Conde Nast, Time Inc. and Hearst Corp., big fish like the New York Times and now Bloomberg (which says it is actually “very pleased” with Apple’s terms) are a good indicator that in this battle, Apple has the upper hand.

And it doesn’t have to do any talking to bring that point home to publishers. iPad sales, and forecasts like the one issued by Gartner Monday morning, which sees Apple staying on top of the tablet heap until 2015 (though problematic), are argument enough. The iPad provides publishers with access to at least the existing crop of more than 15 million iPad owners, but that number has probably grown already by quite a bit, and shows no signs of slowing. Isn’t that worth a 30 percent cut?

Not to mention the fact that Apple has all the power in these negotiations. While magazines are a nice-to-have feature on the iPad, they’re far from the only draw of the device for consumers. In fact, as Mathew Ingram has repeatedly pointed out on this blog, magazines in general aren’t doing a good job of providing appealing content on the iPad. In short, magazine publishers need Apple more than Apple needs magazine publishers, so if this is a game of chicken, it’s not one which Conde Nast et al. are well positioned to win.

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We created subscriptions for publishing apps, not SaaS apps.

The email exchange follows the recent rejection of the Readability app for not abiding by the in-app subscription App Store guidelines. Readability is an app that provides users with stripped-down, ad-free versions of web-based content for the sake of easier reading. The app’s developers announced yesterday that they had received a rejection notice for violating the terms of the new in-app subscription rules, and posted their reply to Apple, in which they argued that the policy was unfair and suggested they would remain focused on web-based solutions, rather than comply with Apple’s revenue sharing model.

Readability works by allowing users to pay a monthly subscription of their choosing (beginning at $5.00). That revenue is split 70/30 between the creators of the content (writers and publishers) and 30 percent goes to maintaining and building Readability itself. The app’s developers argue that if Apple takes a 30 percent cut, the whole basis of their business model is undermined.

Some, like Marco Arment, took Readability’s rejection as a sign that Apple was indeed planning on clamping down on all subscription-based apps, even those that merely offered users access to subscription-based services they’d signed up for on the web, such as Dropbox. Jobs’ reply seems to suggest that in fact, those apps won’t be affected. Looked at objectively, Readability seems to fall under the blanket category of “publisher” much more easily than do services like Dropbox and other SaaS apps like Evernote. Presumably, SaaS apps that chose to do so will still be able to access Apple’s in-app subscription tools, though we’ll have to wait and see if anyone decides to use them.

Of course, like other App Store guidelines, Apple’s in-app subscription policy is far from crystal clear, and leaves plenty of room for interpretation. The guidelines are designed like that on purpose to allow Apple plenty of wiggle room when deciding what applications are and aren’t allowed in the App Store. By keeping the definition of “publisher” nebulous, it can take stock of developer and customer response to its policy implementation and soften or crack down accordingly. Do streaming video providers like Netflix and Hulu count as SaaS apps, or publishers under Apple’s guidelines, for instance? How Apple decides to interpret their role could allow it to save relationships with major content partners that add value to the iOS platform.

For now at least, Apple’s interpretation of its new rules will spare SaaS providers, but that doesn’t mean they’re safe forever. Apple didn’t need to change its policy to block the sale of e-books through means other than in-app purchasing, it just changed the way it chose to recognize and enforce its own guidelines. If it makes business sense down the road, there’s no reason Apple couldn’t similarly change the way it views in-app subscriptions, too.

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So why the controversy? Apple prohibits publishers from offering more attractive (read: cheaper) subscription deals to customers outside the walls of the iOS App Store. Whatever publishers offer outside the App Store must be matched (or bettered) inside the App Store. Oh and just one more thing; Apple will not hand over to publishers the personal details of customers making in-app purchases/subscriptions without the permission of those customers. This last point is great news for consumer privacy, but another nail in the coffin for publishers accustomed to using said data in valuable advertising deals.

If you’ve ever subscribed to a magazine or newspaper you know how it works: A subscription card often asks for far more than just your name, address and credit card number. Those mini questionnaires publishers require of their subscribers supply them with a huge variety of valuable information they can use when selling space to advertisers. In fact, advertisers now demand it; after all, they want to be sure they’re placing their ads strategically — and therefore, spending their money wisely.

It matters not one jot if a publication acquires a few thousand subscribers through the App Store; without the typically-concomitant subscriber data, advertisers will be less inclined to buy space in any iOS publication.

How Did We Get Here?

Much publishing today is less concerned with quality than it is with quantity. The more copies there are of a magazine in circulation — or clicks on a web page — the more eyeballs see accompanying ads. In a world where, more than ever before, readers have more choice of content, but less time to engage with it, for many publishers, the key to generating appreciable revenue lies not in value, but in volume.

And I’m not talking small-time publishers here; in early February, Business Insider revealed AOL CEO Tim Armstrong’s guide to his network’s editors, titled “The AOL Way”, in which the editorial priorities of the company are laid-bare; on a page directing editors in how to decide what topics should be covered, “Editorial Integrity” (in other words, editorial quality) is ranked last, after “Traffic Potential,” “Revenue/Profit” and “Turnaround Time.”

Changing the Game

Online publishing’s focus on advertising, sponsorship and syndication is problematic, for viewers and for Apple as a company that wants to provide worthwhile content for users of its platforms. Great quality content, in this model, is of little use to publishers, despite the fact that it happens to be precisely the thing readers actually want.

Apple, I think, has noticed this problem, and is now taking positive steps to solve it. Apple wants to ensure that publishing on the iPad is never anything less than top quality, where the paramount priorities of publishers lie always in ensuring the quality of their content.

Hard Work for Big Returns

You see, with the rules as they stand today, the only way publishers can be successful in the App Store is by concentrating on producing the very best content. And that won’t happen because they place “Editorial Integrity” in first place on a PowerPoint slide. Publishers will have to commit themselves to produce nothing less than the very best content in the industry. It will take a lot of investment, a lot of insanely hard work and, for some publishers, a serious restructuring of their editorial staff and policies. None of that is easy or cheap, and, for publishers used to and dependent upon advertising revenue, it must seem a ludicrous proposition.

Apple has established a sales and distribution platform that emphasizes content sales and subscriptions over advertising, but if the company really wants to help publishers embrace the “content is king” philosophy, I think they need to do much more to assist in content creation and promotion. However, it begins with giving publishers with something that is still sorely-missing; top-flight iOS publishing tools made available — for free — to all publishers and authors everywhere. iOS is a publishing platform bursting with potential. Apple needs to give content creators an easy — and powerful — set of tools for leveraging it. Its iAd Producer application for the Mac might be a good place to start.

In the end, I believe most publishers genuinely respect their readers and care about the quality of their content; and I suspect they would happily unshackle themselves from their reliance on advertising revenue if only subscriptions and sales revenues could take its place. Apple has provided a tantalizing new path for publishers to tread, provided they don’t just throw their hands up and walk away citing Apple’s greed as a way to take the easy way out.

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Apple finally released official details regarding App Store subscriptions Tuesday, and it’s the same system that launched alongside News Corp.’s “The Daily” on Feb. 2. Under this system, subscriptions in the App Store must be sold using the existing in-app purchasing system found in iOS. Publishers now must offer subscriptions for purchase within their apps if they intend to have a subscription option at all, cutting Apple in on their revenue and possibly threatening the external store model employed by Amazon and others.

Publishers choose a weekly, monthly, bi-monthly, quarterly, bi-yearly or yearly subscription period, and customers can then decide how long they wish to subscribe for, and are charged the appropriate amount depending on their choice. Subscriptions are managed through their personal iTunes account page, and customers are free to cancel any auto-renewals at any time. As expected, Apple takes a 30-percent cut of any subscriptions purchased through the App Store.

Apple is quick to point out that publishers can still offer subscriptions outside of their apps, too — so long as they also offer the in-app subscription method:

Publishers who use Apple’s subscription service in their app can also leverage other methods for acquiring digital subscribers outside of the app. For example, publishers can sell digital subscriptions on their web sites, or can choose to provide free access to existing subscribers. Since Apple is not involved in these transactions, there is no revenue sharing or exchange of customer information with Apple. Publishers must provide their own authentication process inside the app for subscribers that have signed up outside of the app. However, Apple does require that if a publisher chooses to sell a digital subscription separately outside of the app, that same subscription offer must be made available, at the same price or less, to customers who wish to subscribe from within the app. In addition, publishers may no longer provide links in their apps (to a web site, for example) which allow the customer to purchase content or subscriptions outside of the app.

Apple seems to have relented regarding the ability for publishers to provide free access to existing subscribers, something the company was originally reported to have opposed. That Apple is preventing publishers from including in-app links to subscription or store websites may result in even more bad blood between them, however. It almost ensures most customers will just use in-app purchases to subscribe, since the cost to them is the same and it’s far more convenient. The wording of the release makes it seem as though apps such as Amazon’s Kindle could also eventually be affected, though a new recent update to that app was approved overnight and the link to the Kindle Store website remains in place.

Publishers will also get names, email addresses and zip codes of subscribers (although customers will be able to opt out). That’s a bit of a compromise, since Apple had originally been reluctant to provide any data at all to publishers, according to reports. Under the new system, publishers can even seek additional information about customers, providing they make clear that it’s a choice, and that that data will fall under the publisher’s privacy policy, not Apple’s.

This press release definitely strikes a more starkly informative tone than the short, jubilant ones Apple is generally known to release. The company’s outlining of very specific details regarding the new in-app purchasing mechanism suggests that it wants to tread very carefully, with publishers and end users alike. What do you think? Is this fair, or is Apple asking too much from its publishing partners?

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This is what’s called the new “agency model” of pricing, which allows the company serving the content to take a cut. Apple’s own system calls for a 30 percent take of the revenue on all apps (and now books) sold through its online store. Amazon recently introduced a similar pricing structure for certain books and apps. It looks like major publishers are unwilling to absorb the cost of the seller’s cut, preferring instead to pass it along to consumers.

Hachette CEO David Young, however, in a letter sent out detailing the new pricing plans, claims that book publishers will not make more money using the agency model, claiming the opposite, in fact:

[W]e make less on each e-book sale under the new model; the author will continue to be fairly compensated and our e-book agents will make money on every digital sale. We’re willing to accept lower return for e-book sales as we control the value of our product–books, and content in general. We’re taking the long view on e-book pricing, and this new model helps protect the long term viability of the book marketplace.

Call me skeptical, but I can’t help but feel that these publishers are acting more out of self-interest than anything else. It may be true that they actually make less on every book sold using the agency model for electronic distribution, but it’s probably also true that the books cost much less for them to create than print versions, too. I’d be willing to bet that they end up profiting more on a per copy sold basis in the end. Hachette makes other claims in his letter about how the deal is actually beneficial to consumers, despite the upfront price hike:

There are many advantages to the agency model, for our authors, retailers, consumers, and publishers. It allows Hachette to make pricing decisions that are rational and reflect the value of our authors’ works. In the long run this will enable Hachette to continue to invest in and nurture authors’ careers–from major blockbusters to new voices. Without this investment in our authors, the diversity of books available to consumers will contract, as will the diversity of retailers, and our literary culture will suffer.

It’s good spin, but it’s spin nonetheless. The bottom line, no matter how Hachette, Macmillan, or HarperCollins try to spin it, is that rather than introducing competition that will result in lower prices for book-buying customers, Apple’s iPad has in fact spelled the end of the $9.99 bestseller, for both Kindle and iPad users. Apple had to offer publishers an incentive to come over to its side, but the cost of that bargain is unfortunately one we as the buying public will be paying for.

At least in the short term. A longer view reveals a different picture. Apple needed to gain access to the ebook market, and so was willing to make concessions regarding price. Publishers jumped at the chance to get out from under the tyranny of what amounted to Amazon’s ability to set prices unilaterally. But is it a case of “out of the frying pay, into the fire?”

If Apple’s power play succeeds, Amazon could conceivably be forced to close up shop (though I still don’t think I’ll ever stop reading on my Kindle in favor of the iPad). If and when that happens, Apple will occupy the spot that Amazon once did, and will be able to dictate prices to publishers, much like they did and still continue to do with record labels. It’s a rare case where a monopoly could actually benefit the buying public, but only if you’re willing to pay more than paperback prices in the meantime. I’m not sure I’m willing to do that.

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Source: Piper Jaffray

One of the strongest pieces of evidence in support of the existence of an Apple tablet has come into question today. Reports that Condé Nast, publisher of many magazine titles, including The New Yorker and Vogue, was preparing a digital format specifically for the Apple tablet may have overstated the case.

Instead, it looks like Condé Nast and others, including Hearst and Time Inc., are banding together to produce a digital distribution joint venture, which will likely resemble an iTunes store for the magazine industry. The store is apparently being designed with multiple platforms in mind, and is not being specifically targeted at a tablet device from Apple, which may or may not actually exist.

A report in the New York Observer talks about the agreement between the publishing companies, and mentions in particular the fact that the idea is to produce a cross-platform product that’s portable among many different devices:

The company will prepare magazines that can work across multiple digital platforms, whether the iPhone, the BlackBerry or countless other digital devices. The company will not develop an e-book, but create something that people familiar with the plans compare to iTunes—a store where you can buy new and distinct iterations of The New Yorker or Time. Print magazines will also be for sale.

If the deal is successful, according to the interim president of the joint company, John Squires, an official announcement could be forthcoming within weeks, and other major publishers could come on board as well. That doesn’t mean we’ll be seeing a digital newsstand anytime soon, though. Publishers still have to figure out how to create digital versions of the content they aim to provide.

Considering the multiplatform ambitions of the plan, this might be quite a tricky process. Creating a product that remains uniform and recognizable across devices is a major challenge. The consortium simplifies the distribution portion of the equation, though, as a source explained to the Observer:

It’s pretty complicated stuff. The really, really hard part is that you’ve got so many different kinds of devices running on different operating systems. And how do you handle that? The consortium provides one point of contact for the consumer. When you come to the main store, you can get the content any way you want.

It’s possible that this is completely separate from Condé Nast’s plans for Apple’s tablet device, but the timing and nature of the digital distribution scheme make it sound like any tablet formatting may be incidental to a much broader initiative.

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What I don’t think I will ever do, though, is buy an individual book application. To me, that would be like buying individual albums as independent applications instead of through iTunes. Why would I opt to have a thousand different icons on my desktop, one for each album, when it would be far easier, more organized, and more sensible to keep them all in one place, i.e., my iTunes library. The same applies for electronic books. How is it beneficial, to anyone besides publishers and developers, to have discrete applications for individual books?

The problem is that it does represent a significant benefit for those parties. iPhone users vary greatly in terms of their knowledge level and expertise. I still know someone who is, as of yet, not really sure how you get apps on to the device, and he owns one. Obviously, he’s an extreme case, but the point is that there’s still a large segment of the market that might not even be aware apps like Stanza even exist. Hence the need for books-as-apps, like the recently released ScrollMotion Iceberg Reader titles like Stephenie Meyer’s crazily successful Twilight.

Even beyond being impractical, books-as-apps prove annoying to end-users like myself who browse the app store regularly, and have to sift through a great many of them some days to find quality new releases. Might there be a way to satisfy both commercial interests and the interests of the consumer, without clogging up the app store and home screens with hundreds of unnecessary apps?

The answer is the iTunes store. Whether as a model for successful, centralized distribution, as with Stanza, or quite literally, meaning that they begin selling books through the iTunes store itself (not audio books, those don’t count). And yes, Stanza does already do this, but it needs the backing and promotional power of the iTunes store in order to convince publishers to use it instead of creating individual books-as-apps. Now if we could just get comics from major publishers distributed in a similar manner, the world would be a perfect place.

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