Blog Post

Apple Gives Media Companies a Carrot, Tied to a Big Stick

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

After much rumor and speculation, Apple (s aapl) has finally launched its subscription service for publishers, and like many things the company does, it has caused equal amounts of enthusiasm and consternation. The enthusiasm stems from the fact that magazines, newspapers and other content companies now have an easy way to sign up users, instead of forcing them to pay every time they download a new issue. At the same time, however, Apple is taking its usual 30-percent cut of any sales via the platform, which is a big chunk — and it has also put up walls to keep users buying from within apps instead of on the web, which could have a significant impact on some publishers, including Amazon (s amzn).

As Darrell Etherington explains, Apple has made some concessions to publishers with its subscription offering, which comes on the heels of the recent launch of Rupert Murdoch’s iPad newspaper The Daily (s nws), the first to use the new subscription feature. While initial reports indicated Apple wasn’t going to give publishers any information about the people who sign up from within an app, the company says publishers will get names, email addresses and zip codes (although users can also opt out of providing this). And if someone signs up on a publisher’s website, that company gets to keep 100 percent of the subscription revenue. Publishers can also offer free subscriptions, something Apple had also seemed to be cracking down on, at least in the case of some European newspapers.

That’s the good news. The bad news for publishers is that Apple now requires that all subscriptions be offered via in-app purchasing. Companies can also offer those deals on their websites, but they must offer exactly the same deal through their app (which prevents publishers from jacking up prices to cover the 30-percent take that Apple removes). The important line in the news announcement is:

[P]ublishers 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.

This seems certain to impact Amazon, which currently allows users of its Kindle app on iPhone and iPad to click a link and get taken to the retailer’s website to finish the transaction when buying a book. In effect, Apple has put up a roadblock for publishers that makes it difficult to route around the in-app purchase, increasing the likelihood that users will opt for the simplest choice, which is to buy the item through the app itself. Although publishers can obviously try to convince users to do otherwise, by putting call-outs to go to the website or downplaying the in-app purchasing option, many are likely to choose the easiest route, and that means a quick 30-percent payoff for Apple.

The reality here is that Apple knows it has most publishers over a barrel, just as it did with the music industry when it first launched iTunes. Amazon may have other options since it owns its own platform, but magazine and newspaper companies are desperate to find some way of charging their readers, and Apple provides the easiest method of doing so. But the walled garden that Apple gives them access to, while very inviting and pleasant and well-maintained, comes with some serious trade-offs, as I tried to explain when Apple’s subscription plans were being discussed a few weeks ago. There’s a pretty attractive carrot, but there’s also a big stick.

That leaves publishers to ask themselves: How much is it worth to let Apple handle your sales for you? Rupert Murdoch has decided with The Daily that he’s willing to make the trade-off, but Time Warner (s twx) and some other publishers such as Conde Nast have made it clear they’re looking for other options, by signing up to offer their publications via Android (s goog) devices as well as Apple’s iOS devices. Market dominance is a powerful thing, however, and so far, Apple has the customers that publishers want to reach. For better or worse, they’ll have to submit to the stick if they want access to that carrot.

Related GigaOM Pro content (sub req’d):

Post and thumbnail courtesy of Flickr user Giuseppe Bognanni

22 Responses to “Apple Gives Media Companies a Carrot, Tied to a Big Stick”

  1. John Locke

    As a publisher, you must offer the same deal via your website for subscriptions to the iPad app version of your publication (say the New Yorker). However, an android pad subscription to the same magazine might be 30% cheaper.

    If this becomes common practice across publications, consumers will get wise and the market will help drive prices toward the perceived value delivered.

  2. Wow, trying to fight your way back to the top must be an expensive fight if they’re willing to go to such lengths to make money. According to all the iPhanboys, Apple’s doing great for themselves, so why the need to screw content providers so hard? At first I thought it was just greed but now I wonder if they pull this stuff just to see how much they can take advantage of their position before companies just walk away. Well, it’s a numbers game, so as long as Android keeps up the pace, and Apple keeps pushing the limits of how much people are willing to pay to be part of their “special” world, Apple will eventually find themselves as “the other platform”…again. GO APPLE, KEEP UP THE GOOD WORK!

  3. As a resident of New Zealand, and an owner/user of most current Apple hardware I am watching this one with interest. Good as Apple products and the iTunes store are – there are apps and services we do no have access to in this part of the world. Significantly the only books available on iBooks out here are the public domain ones. Using iBooks as an alternative to Kindle is simply not an option, as there is nothing to purchase. Kindle works fine, and I like the across platform compatibility of purchases and reading between my iPhone 4 and MacBook Pro. If Apple do succeed in locking Amazon out of their ecosystem they had better remember that they do have some customers outside of the USA

  4. Ipad Kindle User

    If I understand this correctly, allowing “in application” purchasing means loading your content into the Apple store, that is not a simple task for large content distributors like Amazon, the Kindle collection. Do I have this wrong.

    • Yes, come to Android where our customers expect all content to be free! That’s the sure way riches!

      As awful as the music industry was they were willing to admit that Apple’s 30% cut was a fair deal. We software developers were downright ecstatic about it via the App store. But the magazine/publishing industry has decided to behave like a bunch of 3 years olds having a tantrum. Their sense of entitlement is truly breathtaking.

  5. Apple is not prohibiting sales through other channels.

    What are “traditional” brick-and-mortar distribution costs for magazines, newspapers, etc. What does Target, Walmart, Safeway and the like make on Cosmo in the check out aisle?

    I don’t know where the distribution fee will end up, but the position that Apple is taking is that if you use the in-app purchase, you will sell more. It’s hard to find many sellers who will argue with the opportunity to sell more.

  6. This is like buying a ford, and being told you can only buy gas from certain stations and ford will take a 30% cut. It is institutional greed and arrogance that will eventually kill the closed loop platform.

  7. The terms are still egregious, but if I’m a publisher, I bite the bullet and account for Apple’s 30% cut for a year or so as investment in building a tablet subscriber base. At that point, there should be other viable tablet options, and Apple either gets more reasonable or the experiment ends. A 30% cut for electronic distribution is not sustainable for any publisher or retailer like Amazon, and Apple knows that. But then again, a $450 price for an e-book reader (the Kindle) was not sustainable, and Amazon knew that. I’m hoping that Apple is just trying to leave as little money on the table for as long as possible.

  8. Maybe Amazon could offer a credit of say 10-15 percent toward a free ebook when people buy outside the app, which they can state within the app (no link needed). It would cost them revenue, but not quite as much.