Apple Spells Out iPhone, iPad Content Subscription Terms
Apple today spelled out strict terms for publishers looking to distribute content on the iPhone and the iPad via the company's App Store. In a release that included comments by CEO Steve Jobs, Apple (NASDAQ: AAPL) said publishers will have to pay Apple the same 30 percent cut for subscriptions to online magazines, newspapers, videos and music that developers pay for selling apps in the App Store.
Apple's App Store revolutionized the distribution of mobile apps by providing a standard distribution mechanism for developers in which Apple gets a 30 percent commission in exchange for placement in the App Store and for the handling of credit card transactions.
Our philosophy is simple -- when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing, Jobs said in a release. "All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one-click right in the app. We believe that this innovative subscription service will provide publishers with a brand new opportunity to expand digital access to their content onto the iPad, iPod touch and iPhone, delighting both new and existing subscribers."
Analyst Rob Enderle said Apple can afford to force the commission structure on publishers as long as it holds a market leading position.
"Right now Apple's in the catbird seat because it's the leading platform that everyone else is chasing. Until we get a compelling competitor, Apple will probably get away with this," Enderle, who heads the Enderle Group consulting firm, told InternetNews.com.
Enderle said he thinks it would be smarter for Apple to offer more favorable terms to keep competitors such as Android from gaining a foothold with free or lower cost structures, but concedes Apple can also afford to wait before deciding whether to adjust its policy.
"Apple was all for digital rights management (DRM) and when they saw others dropping that protection, they reversed their policy and it all worked out fine," he said. "They can do the same thing here. My expectation is that they'll hold on to the high commission structure as long as they can."
But iPhone and iPad developer Tony Bove said the bigger issue for publishers is that Apple is controlling the transaction. "If a publisher wants to do an iPad magazine, they want the subscriber information to have in their database, but with this policy that all automatically goes to Apple via iTunes. The publisher now has to ask the subscriber's permission to get their information when they subscribe and that's a more cumbersome process," Bove told InternetNews.com.
Bove said Apple's commission rate is justified because it's helping publishers find buyers for their content.
"It can cost a lot more to find subscribers in traditional publishing model when you think about direct mail, buying lists and paying to get in a magazine stand. Apple's providing a free magazine rack and handling all the transaction costs," said Bove, who is thinking about developing a magazine on the iPad.
"As a publisher I'd go with the App Store today because that's where the market is," said Bove. "News Corp's announcement of The Daily for the iPad made a clear point that this is the year of the iPad."