Apple’s Subscription Service Sour

February 17th, 2011 | Posted in General


MAD and other magazines subscriptions on the iPad are still a long way off…

Apple’s recent announcement of a subscription service within their App store seems like a step in the right direction towards the digital delivery of magazines and newspapers on iPad or similar devices, but as many are pointing out their business model is unworkable.

Back when the iPad came out, I wrote this post about how I saw the future of magazines and newspapers being tied to tablet devices like the iPad and it’s successors. The portability, form factor and ease of delivery of content solved most if not all of the inconveniences of switching from printed form to digital for the consumption of magazine and periodical content. The only holdup was a lack of an iMag Store, where tablet owners could go to get subscriptions to their favorite magazines, or browse for ones they might want to buy single issues of or subscribe to. There is still no such store, but Apple has finally decided to allow publishers to sell digital subscriptions through their apps. The caveats are that Apple gets 30% of all subscription revenues, that any subscription deals offered outside the app are matched or beaten by offers inside the app (no offering cheaper prices outside and cutting into Apple’s share), no mandatory acquiring of reader’s name, e-mail address or zipcode (advertising data) and no links in their content to outside places to buy stuff (i.e. no clickable ads to stuff not under Apple’s 30% umbrella).

Needless to say, publishers are not pleased. So far only Rubert Murdock and The Daily are on board. I don’t see anyone else joining the club.

The 30% arrangement is impossible. Some may argue that it’s no different than the overhead of real newsstand, but it is a lot different overall. Selling single issues on the news stand, which is priced at top dollar is meant only as an impulse buy to the browser, traveler or person looking for something to read while waiting for a meeting. Magazines don’t make money from single issue newsstand sales, even at those exorbitant prices. Cheap subscriptions and the ad revenues that come from a definable reader base are what magazines have been making their money from for decades. Apple’s business model makes that impossible.

There is a digital magazine subscription model that seems to be working. Zinio had been around for a decade and has a business model based on accommodating the needs of publishers, not dictating they conform to a computer company’s idea of how the publishing business should work. Zinio has had modest but very measurable success using their model. Right now Zinio has an app on the iPad, but that is likely doomed under Apple’s new subscription service.

Apple’s iPad has a big headstart on the tablet market as it was first to the scene and no one can argue that Apple does gadgets better than anyone. However tablet devices are going to be a lot more than portable movie machines and web browsers. They will be the way people carry their entertainment content around with them, and get it delivered to them, in the near future. Print media may be floundering but the desire for the content they provide is not… merely the way that content is delivered. Apple’s draconian demands on content providers like their latest subscription service and their refusal to allow Flash on their device browsers is going to be their downfall. If Google or some other company comes up with a digital newsstand allowing publishers/media to provide digital subscriptions to their magazines, newspapers, TV shows and the like in an iTunes Store type place, and allows the providers of the content a way to cash in on their wares, I think people will abandon the Apple device platform and follow the content. The “halo” effect of wanting to pair a Mac with an Apple device is already disappearing, with the devics themselves providing the gateway to the internet and content.

Need further proof this is or might be happening? The Richmond household is as Apple supportive as they get. We have under our roof 3 iMacs, 3 Macbooks, 1 MacBook Pro, 2 Apple TVs, 4 iPhones, 3 iPads and I lost count how many iPods. Steve Jobs should personally come to my house and make us dinner. Yet, when the time comes to consider a new tablet, I am going to start with anything that ISN’T the iPad and go from there. That should tell you something.

Comments

  1. Adam says:

    I just read an article about this with 2 observations..
    1- The 30% was actually LESS than what they expected apple to take. (YIKES!)
    2- On the android platform, Google only asks 10%. Lets get a few more Samsung and other tablets out there!!

  2. Adam says:

    Oh… just a quick follow up… In our house, there is a mac desktop, and a powerbook along with an iphone and an ipod touch. Also big mac supporters, but they seem to be getting greedy now…

  3. Lash LeRoux says:

    Wow, Tom. I wanted to add something, but I think you said it all! And, as usual, you’re spot on.

  4. Bearman says:

    But wait Apple. You are losing so much money not charging the 30% to sellers on Ebay using the ipad app.

  5. Jeff Zugale says:

    I must respectfully disagree with you, Tom, because of what happened to the music biz over the last 10 years, and what’s happening to the book biz right now.

    I believe Apple feels it is pretty confidently in a position to dictate and create a *new* business model to the magazine industry, as it has done to these other businesses. There will be a transition period – books are in it now – where companies adapt to new rules. Those that do will thrive, those that don’t will not. And Apple is not totally inflexible, there will be lots of negotiation and adjustment on both sides before it’s all done.

    As regards our beloved MAD, I see that a year subscription goes from around $15 to $25, which I great compared to the $7 per issue cover price. What would stop DC from offering that same price in a MAD app?

    It might be a bit of a loss leader at first, but in stark terms MAD’s circulation is less than 200,000 copies now, and it can’t be adding many subscriptions per year. There are something like 50 million iPads out there already (I’m writing this on mine); wouldn’t the chance of gaining even 100,000 subscribers be worth taking a chance on giving Apple 30%?

    I do understand that the way things are, a lot of magazines are on really tight profit margins right now, so I understand that seeing that 30% number would be scary when looking at immediate bottom line. But we’re talking about 5- and 10- year survival, here. Can any publishing entity afford to ignore the digital transition in general, and Apple’s role in particular, in the next few years?

    Also, much as I can’t stand Rupert Murdoch, I’m not gonna bet against him when it comes to making money. I’m not interested in The Daily, but I’m interested to see how it works out.

    Finally, re getting a non-Apple tablet… I’m like you, I have a house full of Macs and now 2iPhone 4s.. I’ve had the chance to play with a bunch of Android phones, and

    • Tom says:

      The book and music model work because they are single unit sales where the content itself is the revenue source. Magazines and TV shows revenues are based on advertising and subscription models. Two different animals. Apple’s model is unworkable. 10% plus allowing magazines to sell external advertising with a single virtual newstand to purchase single issues for, say $2.99 and subscriptions for a year for $9.99 would be sustainable. 30% is ridiculous.

      As for being disappointed in hardware outside of Apple, I doubt that. Personally I cannot wait to try a tablet that allows me to access and use flash based websites, let alone that might have a workable subscription service to the content I want to subscribe to. Apple is great with hardware, but they aren’t the only fish in the pond.

      • Jeff Zugale says:

        Well it’s certainly true that the playing field overall is very different from 10 years ago, with Google and Amazon being able to offer their own subscription sales models on the same hardware, and doing so. If 30% is ridiculous, we’ll know pretty soon. Apple will either adjust if things don’t go their way or they’ll have another iBookStore-like failure.

        I agree that given the *existing* business model of the publishers, 30% is really steep, but I feel like the opportunity to reach literally tens of millions of potential subscribers *who would not ever buy a subscription to the paper version of the publication* with the aim of *actually selling the content at a profit* without depending on selling internal advertising (which of course they can still do, for “gravy money”) is worth a serious look. Even if on the face of it, it seems like a business-killer.

        I would *love* to see MAD go from under 200,000 circulation to over 2,000,000 again, and I feel like that’s possible under this model. I don’t feel like doing this would cannibalize current paper-version sales – MAD fans are serious fans! – so I don’t feel like MAD’s current state of affairs is in any more danger from this than it is already given the overall climate. So I feel like in MAD’s case it wouldn’t hurt to try this; of course that depends on the corporate parent.

        I don’t have any skin in this game at the moment, so it’s easy for me to say this, but I think just flat out saying “this is crazy, it will never work, Apple is being ridiculous” is premature. It will be interesting to see how both Apple and the various publishers react to Google’s One Pass, but I think it will be a few years before we see how this will all fall out.

        On the tablet thing, I can say that I personally haven’t missed Flash websites at all using the iPad, but of course everyone’s mileage will vary. Apparently I don’t spend a lot of time on Flash-heavy sites! I feel like if you currently spend a lot of time on Flash sites browsing from your desktop, you’ll miss it, if not you’ll barely notice.

        I just know that a lot of my friends with Droid phones aren’t too crazy about them. All of the people I know who switched from AT&T iPhones to Verizon Droids were disappointed by the user experience (though much happier with the cell phone service!) and are now getting Verizon iPhones to replace them.

  6. Jeff Zugale says:

    Uh woops…

    If the Android tablets compare ti iPad as the ones do to iPhones… Well, your experience will probably disappoint, I’m sorry to say. :/

  7. Brian Benson says:

    I wonder how an investor could profit from the switch from print to digital. I need a crystal ball.

  8. Lee Fortuna says:

    Tom maybe it’s not a good idea to mention on the internet what and how many Apple products you have in your home! Too many “crazies” out there, GABEESH? Maybe you should purchase an alarm system now?,lol.

  9. Jeff Zugale says:

    Here’s a short bit that I found on DaringFireball about this, pointing out a Tweet by former Apple exec Jean-Louis Gass?¬©e:

    http://daringfireball.net/linked/2011/02/15/gassee-subscriptions

    The Tweet quoted is: “Apple‚Äö√Ñ√¥s new rules rile. But not me: I‚Äö√Ñ√¥m the paying customer and I resent the old model. The new rules are customer-centric.”

    *Customer*-centric, that’s the key. Apple is attempting to create a business model that customers will like now and going forward, not that publishers will necessarily like *right now.* Everyone in the music business hated and feared the iPod and iTunes Store… up until they realized they were reaching more customers and making more money.

    Obviously it remains to be seen how this works out, but judging from recent history, those who fail to find a way to work profitably within such a system don’t do very well.

    It’s certainly been fascinating watching the media transition over the last decade!

  10. Greg says:

    Wired magazine is trying to sell its “issues” for 4.99 a pop. While surely if they offered a subscription, it would be cheaper, they aren’t exactly providing incentive to people to buy issues, at least on cost.

    Publishers are just going to have to figure out what costs are going to make them some money, to profit. Apple, or any company, asking for a percentage by selling through their ordering system, an iTunes account and probably through the iTunes/App store, isn’t too much to ask for. If the publisher sells through their app, and whatever system they have, don’t they get to keep 100% of the sale?

    I think most people are crying foul simply because it seems confusing and noone seems to be explaining how it works. Like it was written, this is going to work out well for customers, and that is all that really should matter to publishers now. Why? Because, just like you are ranting about it on a webblog, Tom, customer’s feel they deserve everything a certain way. Apple is looking out for customers and its bottom line.

    If a publisher didn’t allow for people to subscribe through Apple’s iTunes/App Stores and the publisher completely cut Apple out of sales which it could make from subscriptions then Apple would lose revenue because everyone would game their Apps like that.

    As for Flash not being on iOS devices….man, hasn’t Apple been a bee in Adobe’s bonnet and hasn’t Adobe fast-tracked improving Flash since for years Adobe and Macromedia before it just twiddled their thumbs on the mobile version. Yet somehow, Adobe got its act together. Is performance for Flash on mobile devices good? From what I’ve read, it can be or maybe it runs sluggishly. From what I’ve read, it can tap the battery life a bit. But then again, most non-iPads don’t have great battery performance/life.

    Add to that, Flash in general is geared more towards people using a mouse and not using gestures and there are still some hurdles for Flash on all mobile devices, including what Apple delivers.

    • Tom says:

      We will see how it all plays out over the next few years, but as I recall Apple once before to hold consumers and developers of software/hardware with a “my way or the highway” stance over operating systems. It took them over two decades to become relevant again, and that only happened because of a handheld music player.

  11. Greg says:

    As for a diminishing halo effect, keep in mind, while sales for the iOS systems are the bulk of revenue for Apple, sales of laptops and desktops are going up, too. If they only sold Macs, the company would be doing pretty dang good compared to the Dark Days. But, thanks to the products no one takes their eyes off of, the company is growing at a phenomenal rate.

    http://finance.yahoo.com/news/Apple-Is-Getting-Stronger-On-siliconalley-3770892606.html?x=0&.v=1

    The company is creating markets and consequently creating opportunities for others to make money. Part of the thing that turns my stomach is the bandwagon effect where it seems like everyone/company tries to make money off of Apple. While that is good for consumers to have the choices (and there are 350,000 apps in that store Apple runs; not exactly small beans in tiny barrels) and there are opportunities for publishers to sell through Apple’s store. Sure, they could set up their own stores and sell to other…wait….no…they need to go through Verizon to sell through its store, through Google for its store, etc.

    People could still develop for/publish for Macs or PCs and not need to jump through hoops but that isn’t exactly what’s happening. Instead the supposed easy route to easy money is the iPhone/iPad and smart-mobile devices, in general.

    Seems like there are missed opportunities. Because publishers could be setting the bar themselves by going for the more open market and figuring out how to make money selling to Mac and PC users. They could be figuring out how to make money on the web by selling directly to the consumer. But, they can’t. Instead they have to rely on Apple to make things work. That seems tip-worthy, at the least.

    Suffice it say, there is a halo effect and more and more people are buying Macs, including businesses. That is a sea change. I’ve met waaaay too many guys who referred to Macs as expensive “toys.” All of them were business men. But that was then…

  12. Jeff Zugale says:

    Tom said, “but as I recall Apple once before to hold consumers and developers of software/hardware with a ‚Äö√Ñ√∫my way or the highway‚Äö√Ñ√π stance over operating systems.”

    They still do this now. They exercise very strict control over their hardware, the operating system, and any third-party add-on hardware or software that runs on it. The reason they’ve stated over and over and over for decades is “Apple is the only computer company that takes responsibility for the entire user experience.” That’s as near a direct quote from a Steve Jobs keynote as I can recall it.

    That stance is, sort of paradoxically, both part of the reason Apple got clobbered 20 years ago *and* that they are doing so well now. They haven’t changed that policy in the slightest, and it’s resulted in extremely high quality, usability, value and most importantly, “gotta have it” brand appeal that’s fueling their success.

    Disclaimer/disclosure: I make my living with Macs, with Adobe and Corel software. I also own Apple stock. On the face of it I may seem like a fanboy, but I’ve used Macs and PCs, usually sitting right next to each other, for more than 20 years, and after all that for me the Mac is by far the better platform. So I’m a believer, yeah.

  13. Greg says:

    Tom, I do recognize that it might not work out the way Apple wants. But, the company is trailblazing here; and, that includes making up the rules as it goes forward (again, the publishing and entertainment industries don’t seem to know how to make it work online).
    I surely don’t hope that this trailblazing leads Apple into the Wilderness but, hey, it seems to be further away from that than back in the late 90s.

    And, as with various things since the introduction of the iPod and monetizing iTunes by transforming it from an MP3 jukebox software to a full-fledged online store contained in its own browser*, Apple will make changes to try and make things work…or…it will drop like a hot cube shaped computer.

    For instance, I read that the company’s iAd system isn’t getting as much business as wanted, so the company might have to change the policy or the approach to make it work for businesses. Surely, if it is not working, the company will make the new subscription policy more friendly so that it is used.

    Obviously, the company has gone toe-to-toe with the recording and movie industries to try and get things that are mutually favorable, so it would surprise me if they make further compromises here, too. It ain’t pretty to watch this but you–we all– know that the times are a changing. And, companies/businesses are trying to adapt as well as go forward. Apple, fortunately seems to have a good string of fortune which, like Jeff wrote, seems to be because of their stubborn whole widget-centric mindset.

    As it goes, here is an opinion piece on why the new system might have a good side, and not just for Apple.
    http://techcrunch.com/2011/02/15/apple-in-app-subscriptions/

    * Think about how remarkable that is: iTunes is a successful store. No other company,not even Amazon or Microsoft, with XBox Live, has matched how successful iTunes is. In fact, it seems like only companies which use iTunes and the App Store achieve that boost in having a store in an application.

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