Apple (s aapl) doesn’t provide a means for distributing content via the App Store out of the goodness of its heart. It wants a cut of any profits other companies make there, which is why it takes a 30 percent slice of revenue from purchases made using its iTunes infrastructure. Now, Jobs and company hope to extend that model to newspaper subscriptions, too.
The iPad is a great e-reading device, but it falters when compared with the Kindle in that there is no consistent means of subscribing to periodicals. Some apps feature in-app purchases to get around this (i.e., the Times), some, like Zinio, handle it outside of Apple’s iTunes store framework, and the iBooks app is missing such a system altogether. According to sources familiar with the matter, though, Apple is about to remedy that with a new subscription scheme tailored to digital newspapers.
Industry watchers predict the revenue scheme will resemble existing models, with Apple grabbing 30 percent of all subscription fees, and possibly nearer 40 percent of advertising revenue from the digital newspapers. Cupertino has also apparently agreed to an opt-in function for subscribers to share their data with publishers, instead of just with Apple itself, which is normally the case for transactions made through iTunes.
According to Roger Fidler of the Donald W. Reynolds Journalism Institute (via San Jose Mercury News), newspaper publishers aren’t thrilled at the deal. They wanted to pay Apple a straight fee rather than a percentage of profits derived from subscriptions and advertising. Advertising in newspapers generally subsidizes subscription costs, so handing over a significant portion of both will mean that news outlets have to look at restructuring how they make money, and from where.
It’s not surprising that Apple wouldn’t want to change the revenue formula that’s worked for it in other areas. It enjoys a 70/30 split on all apps and in-app purchases currently, and a 60/40 split from its iAd in-app advertising platform. To extend the rules to newspapers is just common sense.
But digital advertising isn’t as effective as print. And the fear is that even with large numbers of subscribers to digital editions, it won’t be able to support the bottom line since attracting advertisers will be difficult. Not to mention that people will still expect to pay the same low fees for subscriptions, if not less because they think digital publishing incurs less cost than traditional, paper-based production.
Bottom line, newspapers have to start delivering content in a way that extends beyond presenting a scanned page or a glorified RSS reader to users if they want to attract new revenue. They should take a cue from Wired and other iPad magazine apps which have made full use of the platform, embedding interactive and rich media content into their designs.
Better yet, start from scratch and build something from the ground up aimed specifically at tablet computers. It’s a risk, but is it any more of one than continuing to watch readership numbers fall?