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

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What's fair, I believe, is that Apple charge $5 to $10 for each new subscription (not a percentage) for publications and streaming media -- but nothing for renewals -- for its passive role in signing up new subscribers. It would also be fair for Apple to charge a 5 or 6 percent handling fee for processing the transactions, including renewals, done through iTunes from that point on -- just as a credit processor does. In other words, Apple should get a bounty for facilitating the new business but no perpetual cut beyond the processing fees for handling the transactions.

As for Amazon and B&N, they should split the commission with Apple for e-book sales made via iTunes, with Apple taking 10 percent (after all, its role in the sale is more passive) and Amazon or B&N taking 20 percent. In announcing the new subscription policy, Apple CEO Steve Jobs said his philosophy was that Apple deserved a cut for the transactions it brought to the table and nothing for those that happened outside. In the case of these e-books, it took both Amazon and Apple, or B&N and Apple, to get the customer, so they should split the commission ultimately paid by the book publisher.

Rhapsody has made noises about legal issues, suggesting antitrust claims could be in the offing. The United States already lets monopolies get away with a lot, so that's a hard row to hoe. But the feds also hold platforms to a higher standard than other businesses, so at the very least a troublesome inquiry could follow. In fact, the Wall Street Journal reported yesterday that the Justice Dept. has begun an informal probe into Apple's subscription rules, and Reuters reported today that the European Union has also begun inquiries.

Apple does have one possibly strong argument to deflect such a probe: competition from Google's Android platform. Android provides a popular alternative for those who don't like Apple's terms; in fact, some publishers are eagerly developing subscription apps for Android, as well as for HP's forthcoming WebOS 2.1. Google is already offering its own One Pass checkout system for publishers to use for both their online and mobile content, charging a 10 percent commision -- much less than Apple. (But let's not forget Google's very media-unfriendly moves, such as its trying to corner the market on old books and its scraping of others' content in search results. There are two devils for media firms to dance with, not just Apple.)

Ultimately, Apple needs a thriving market of digital content to keep the iPad's value proposition strong, so it can't be so stubborn that it drives away content providers. The media industry probably needs Apple more than Apple needs them, but they still need each other to significant degrees. We've seen Apple compromise with the music and video industries, as well as with Adobe on the iOS-export-from-Flash tool that Apple initially banned. It took saber-rattling, the attention of the feds, and a public war of words.

But hey, that's business. Apple has given media companies until June 30 to comply with the new policies -- leaving 14 weeks for negotations.

If at the end of the day, media providers can finally get customers to pay reasonable, realistic amounts for quality content, everyone wins -- including customers who today are being fed increasing amounts of junk scraped from search engines and provided by unpaid hobbyists because that's how media companies handle the decline in revenues.

Apple's moves may finally jolt the media industry into pricing that makes sense for all concerned, while ending the unhealthy business models that threaten so much of that industry's very survival. Of course, Apple's moves could also have the opposite effect: Publishers could lower subscription fees even more to reduce the "iOS tax" and try to make up the reduced revenue elsewhere. That would likely mean cutting content creation costs and filling their e-publications with too many ads; if so, we can expect crap such as The Daily iPad publication (with which Apple chose to launch its subscription service) becoming the norm. Let's hope not!

This article, "Apple's iPad subscriptions: Troubles all around," was originally published at Read more of Galen Gruman's Mobile Edge blog and follow the latest developments in mobile technology at Follow Galen's mobile musings on Twitter at MobileGalen. For the latest business technology news, follow on Twitter.

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