Apple's iPad subscriptions: Troubles all around

The 30 percent cut on digital content sold through iTunes is freaking out some publishers and media developers, but it may ultimately be a healthy move

Apple is not a shy company, and its new iOS subscription capability for iPads, iPhones, and iPod Touches is a bold grab for a cut of the digital content action. Publishers and media companies aren't happy about Apple's new scheme -- particularly the requirement they offer in-app purchase for subscriptions at the same or better price as they make available outside iOS, as well as the fact that Apple gets 30 percent of all revenue from in-app digital media purchases. Media developers don't want to give Apple that much money for being a distribution channel to their readers, listeners, and viewers -- especially when Web distribution is significantly cheaper.

But this is not simply a case of a greedy, powerful Apple strong-arming defenseless media companies. Apple's move exposes a long-flawed business model at most media companies, one that Apple has clearly decided will not be its burden. I doubt that Apple cares about reforming the media industry's broken business model, but that may end up the result nonetheless. As the industry and Apple work their way through this -- you can expect some changes as the corporate dance gets serious -- we may end up with a healthier business model for online media, and thus for creators, developers, distributors, and customers.

[ InfoWorld's Neil McAllister shows how the Mac App Store may be the norm for future developers. | Keep up on key mobile developments and insights with the Mobile Edge blog and Mobilize newsletter. ]

The publisher's dilemma
Bear with me as I explain the real problem, so I can then illustrate how Apple's move could lead to a better result for developers, content creators, and customers. Actually, make that problems (plural), as what ails print publishers is different from what's eating music and video streaming businesses and what concerns online bookstores -- all of whom are upset by Apple's policy.

In the print publishing world, most magazines and newspapers are sold through heavily discounted subscriptions meant to create a large base of readers. These subscribers are then sold to advertisers, through both ads and direct marketing. That's why you see subscription prices of $12 per year for monthly magazines that cost at least that much just to print and mail (roughly $1 per copy, and as much as $4 for the thick, glossy magazines). The subscription fees don't pay for the creation of the content, nor for the circulation marketing that gets the subscribers in the first place. Publishers make their money from advertisers.

At least they used to, back before Web advertising and search advertising decimated the print ad business for most publications. Today, print publications depend more on their print subscription prices, which is why they've risen in recent years. At the same time, print publications have learned the hard lesson that having given away their content for free online has trained readers to believe it has little value. And now that online advertising income is proving insufficient to pay the bills -- the money is instead flowing to Google and perhaps soon to Facebook -- publishers want to charge for online subscriptions.

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