Thursday, 3 March 2011

Collateral damage: Newspapers and Apple's 30%

Much has been written about Apple's 30% subscription and in-app payment model with respect to newspapers, but it has almost nothing to do with newspapers at all.

If you follow the money, strategically this is all about itunes the tv, movie, and music store and to a lesser degree ibooks.

There are so many competing sources of free news, commentary and analysis that direct subscription newspapers and magazine content will be a drop in the ocean compared with other itunes content sales, and magazine or news periodicals will continue to be funded predominantly by advertising revenue, a platform that Apple has much less control over. This is before you get to the still unsolved problem of delivering large amounts of regular content over creaky phone networks and allowing people to read it offline in an interface that doesn't suck.

With services like Hulu and Spotify, the battleground for other content subscription based apps is set, but Apple doesn't want a dozen different content apps. They just want the itunes store to be the app people need to consume tv, movie and music content regardless of the payment model. As sure as night follows day Apple will introduce a subscription model for music content that doesn't undercut Spotify but competes with it on some level, and effectively force Spotify off IOS with the in-app purchase rule. The purchasing rule is just the stick to herd the content producers into signing along the itunes dotted line so they can get the thing launched in time for the next ipod or iphone refresh, and to get people on board with 99c tv rentals instead of holding out for a hulu app or some such equivalent. Who knows what cut Netflix is paying. I suspect it's probably not 30%, since that deal seems to have been done to make the Apple TV relevant. Once they can compete with Netflix on content they don't need it or can renegotiate.

With ibooks, Apple is never going to be on the Kindle or the web, so they are likely just going to nudge Amazon's app off IOS to level out the playing field. For it's part the worst that can happen to Amazon is that they have to accelerate deployment of their in-browser reader for IOS users, so download your kindle app while you still can. I find it ironic that a number of commentators have focused on the in-justice to Amazon when ibooks is the only thing that has forced Amazon to lower it's commission which is still not as competitive or as simple as ibooks for the average author. It just has the bigger market share.

The Amazon, Apple likely tussle over ebooks is illustrative I think of how the whole 30% issue might play out longer term, but the key is for Apple is to keep growing the number of ios users. It is only a matter of time before growth of the premium iphones level off as less people upgrade, and since they sell the headless Apple TV with the A4 chip and 8GB of ram at $99, a $199 equivalent pre-paid iphone ("iphone touch?") seems almost certain for the latter half of this year. Carrier locked you might expect pricing closer to the magic $99 price point.

Only at the point at which Android becomes a serious threat in actual content revenue will they even begin to think about lowering the 30%, and even then they've got plenty of cash to protect their market at that point. Let's just say that itunes revenue plateaus and Android starts to catch it on the content front. At that point Apple will likely switch from passively marketing content put up by producers to using it's cash to aggressively go after content exclusives to defend it's market share. It's going to be a long game.

Here's hoping Android, Web OS, or Windows can catch up as soon as possible to bring down that 30% to something that is more equitable for content producers in the long term, but having seen how much the physical retailers often demand from producers in terms of margin, volume rebate, and co-op advertising, Apple's 30% is still looking like a bargain by comparison. Most people aren't interested in the ideology of open and free platforms, they just want their apps and content.


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