Apple launches subscription system, gouges publishers in the process

Apple's newly unveiled Pad/iPhone magazine and content subscription system demands 30% of all sales and makes alternate subscription systems virtually unusable.

Apple began worrying publishers about changes to its App Store policies last month when it sent warning notices to various magazines and newspapers telling them that they wouldn't be able to offer free access to content based on outside subscription methods (like their base of print subscribers). The situation got worse when Sony reported to the NY Times that its e-reader app had been rejected. That announcement lead many to speculate that any app that delivers content purchased outside the App Store might be banned including Netflix, Hulu+, Amazon's Kindle, and others.

The entire situation seemed to revolve around Apple's plans for an iTunes/App Store subscription based service. Such a service was introduced with the launch of News Corporation's The Daily electronic newspaper.

Today, Apple opened its subscription service to any and all app developers. The service may have some appeal to consumers because it allows all billing for a subscription to be done through iTunes in a one-click format and delivers new content to iPads and iPhones as soon as it's published. Unfortunately, Apple is plainly showing itself to be greedy and uncaring when it comes to how it's treating its iOS developers and the results could have far-reaching consequences for the company and the use of its iPad as an e-reader and multimedia viewer.

The issue isn't the subscription system itself. The problem is that Apple is effectively shutting down alternative subscription and content purchasing options outside of its new in-app subscription system.

Apple is technically allowing developers and publishers to continue to employ other avenues customer billing and subscription management. This includes selling purchases from a website or providing access based on print subscription alongside Apple's new in-app system. That sounds perfectly reasonable and fair. If Apple's announcement had ended there, I doubt anyone would object. Unfortunately, it didn't end there.

Developers and publishers are allowed to use whatever outside system they want, provided their apps include the needed user identification and authentication mechanisms for those systems. They also have to make the same or lower pricing available to users through the in-app system. Even that wouldn't be a bad situation except that Apple takes a 30% cut of all those sales/subscriptions and will not allow companies to adopt any business model to recoup that cut short of an additional 30% onto the price of their existing sales and subscription systems.

With margins being paper thin for most publications, hacking 30% off of a digital sale and handing it to Apple with no easy way to recoup the difference will be challenging at best. Increasing the price of sales via other delivery methods, including those designed for competing devices and platforms, isn't really an option (and shouldn't be one Apple has any right to expect) because that's likely to deter non-iOS users.

Even with that bit of bad news, you could at least attempt to argue on Apple's behalf. I'm not sure you'd win, but at least there would be the argument that publishers and content producers could steer customers to outside subscription systems – or even just continue to make existing systems easily available. After all, most Netflix and Kindle users are used to managing their accounts outside of an app.

Unfortunately, Apple is thumbing its nose at developers in that area as well. The new terms and Apple's press release both clearly state that developers will are no longer allowed to make accessing outside systems easy for their users. To quote the press release:

In addition, publishers may no longer provide links in their apps (to a web site, for example) which allow the customer to purchase content or subscriptions outside of the app.

For some apps, like Netflix, that offer content delivery both inside and outside of an iOS app, this clause won't make much difference. For other apps, including Amazon's Kindle, this will be a huge difference. More importantly, it will be huge difference to magazines, newspapers, and smaller companies whose apps aren't immediately associated with other online sales or billing systems.

In demanding equal or better deals as outside systems but also taking a 30% cut of those equal or better deals, Apple is gouging content producers. That move will hit the nascent efforts of print publishers the hardest, but it could impact any content-based app developer. Even that might be excusable if Apple wasn't forbidding developers to even mention that non-app purchasing options are available, a move that essentially removes the option of selecting a non-Apple option from users.

Ultimately, as was suggested when Apple first started indicating it might make a move such as this, the best option for many publishers and content producers/resellers will be to move to solely web-based apps. In addition to avoiding Apple's draconian developer terms (which sometimes change with little warning), web apps also offer the advantage of being almost complete platform-neutral. Since the mobile landscape is far from settled, this could have a huge advantage in itself.

In the end, Apple should reconsider this move. It is likely to drive developers and content away from iOS and could give other platforms a big advantage one or two years down the line. Apple's greed here is matched by its arrogant belief that because it revolutionizing smartphone design and creating the first widely adopted tablet means it will continue to rule the mobile space. Mobile is all about app developers, content, and appealing to users. Seem to greedy and indifferent, and you stand to lose all three.

Ryan Faas writes about personal technology for ITworld. Learn more about Faas' published works and training and consulting services at www.ryanfaas.com. Follow him on Twitter @ryanfaas.

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