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A conversation with David Rose, little magazine veteran and publisher of Lapham’s Quarterly
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Feb. 17, 2011, 10 a.m.

The Newsonomics of Apple/Press+/Google’s pay-for-all

Editor’s Note: Each week, Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of news for the Lab.

We could call this week a paid content free-for-all, but that’s self-contradictory. So let’s call it a pay-for-all, a fray of still-developing schemes that are certain to keep morphing as both competition and publishers’ heads spin ever more quickly.

It’s a head-banging adventure to figure out what’s unfolded just this week. Apple offered a proclamation of policy, and given its aversion to talking with the press — what kind of media company is it becoming? — managed to multiply questions rather than answer them. Google, coincidentally, announced its own publisher program on the heels of Apple’s release, which sounded better than Apple’s. European publishers are meeting today, in London, to sort out the who’s-doing-what for (and to) whom. Meanwhile, U.S. publishers burn up the phone lines and extend the e-mail streams, upset, irate, and confused.

Well done. If Apple’s business strategy here is divide and conquer by muddle, misunderstanding and mix-up, it couldn’t have done a better job.

If we had to pick one storyline for the Apple play, we could describe it as Old vs. New World, with Apple saying to publishers, “Sure, bring those oldster subscribers into our digital world and keep the change, but we’ll be the ones selling the new subscribers to come.” That storyline, though, lacks nuance. In addition, there are in-between solutions (no skipping ahead) to the issues.

This week, let’s try a Newsonomics of the Apple, Google, and Journalism Online pay-for-all Q&A, to poke at and tease out the issues.

  • Is this all about money? Money and power, what else is there, right? This is really about money and data, though. The money is easiest to grasp — the 30-percent share that Apple wants for selling news and magazine subs through its store. The data is potentially more valuable, the real currency of the digital world. It’s better than cash, because it produces cash cumulatively: Data tells marketers, from Apple to news and magazine publishers to advertisers of all kinds, how they can better sell us stuff over time.
  • Is Apple’s move to dictate so many terms legal? We may as well ask whether it’s fattening (and to whose wallets) or moral. Anti-trust is certainly one issue here, but the anti-trust laws were never meant to tackle a rocketing market dominance from zero to 13 million (about the number of iPads sold in a year) in what may be a new category of business. Is the tablet simply a new device, or is it an entire marketplace, of readers and advertisers, quickly in the making? Current estimates say that Apple will have still have 70 percent or more of the $80 million U.S. tablet market by the end of next year. That’s all forecast, though. U.S. news companies are looking at several avenues of legal redress, already, around the notions of dominance and Apple’s alleged interference with their customer relationships and pricing policies.
  • Doesn’t Apple deserve just a small fee for enabling commerce, say a 2.5+ percent to cover its costs, and add a bit of profit? If you look at the actual costs of enabling a subscription transaction, you’d start with a low single-digit number. In fact, though, Apple does deserve some payoff for its market-making success. For publishers, especially, its tablet innovation — built on a couple of decades of failed tablet ideas — has provided new life, the chance for a reinvigorated business model that gets digital readers to actually pay for news. Apple deserves something for its investment in hardware and software, plus a bonus for outrageous ahead-of-the-pack ingenuity. Further, the company deserves kudos for forcing Amazon to flip its 70/30 revenue split of 2009 to 30/70, in favor of publishers. It wouldn’t hurt publishers to acknowledge the market-making feat Apple has pulled off with the iPad. My arithmetic, though, shows Apple’s just deserts to be something less than a 30 percent annuity.
  • What’s all this shouting from newspaper and magazine publishers about owning the customer? Pick apart a media company, and it doesn’t really have that much in the way of assets. In the digital age, the five-story downtown office building and the printing press — once part of the high barrier to entry for competitors — are now anchors, and being sold off as soon as the market allows. Brand — goodwill — is certainly valuable, but the definable hard assets are advertiser account lists and circulation lists. The circulation lists point, though more questionably today, to lifetime value. A buyer (O Brother, Where Art Thou?) values that list. Now, in this tablet age, the circulation list — really the connection to reader/customers — is the vital link in selling more stuff: tablet subscriptions, to be sure, but also a host of other digital products and services to come.
  • Hasn’t Apple, though, made it possible for publishers to sell digital subscriptions from their own websites? Yes, but its new rules on how they can do it appear to twist settled issues into new knots. The Financial Times and the Wall Street Journal, in part adjusting to the tablet era and Apple’s signals, have moved to all-access models (“The Newsonomics of News Anywhere“), offering digital bundles (desktop, laptop, tablet, smartphone), print and print+ digital bundles. Now it appears that while Apple will continue to allow them to sell those bundles from their own websites, they can no longer sell them from within the Apple app environment. (Only Apple can now do that, most think, but are unsure.)
    So if the Journal wants to be really all-access — offering one price to use your Android phone, your iPad, or your Kindle, and to get the paper — it can do that from its own website. But any customer who finds the Journal on the iPad can buy only a limited iPad or iPhone subscription, since Apple can’t authenticate  operating systems other than its own. The latest Apple move appears to fragment a clear trend in the industry to move to a simplified single-price, no-fuss, all-access model.

    One more knot: The Apple rules seem to force publishers to restrict access for desktop/laptop access to their websites, if they want to bundle iPad/iPhone subs. That may be a good business model, but it’s not one that a single manufacturer should be able to force. Overall, this week’s announcement raises new questions about publishers’ abilities to effectively bundle and unbundle — and that’s a big key for next-generation success.

  • But, wait a minute, isn’t Apple talking about providing more customers to newspaper and magazine companies? Yes, no and sort of. Here’s the compelling number to breathe in for a moment: 160 million. That’s the number of registered iTunes account holders, more or less. The largest U.S. newspaper by circulation, the Wall Street Journal, counts only 2 million subscribers, print and online. Even the biggest in the world, Japan’s Yomiuri Shimbun, boasts less than a tenth of that 160 million.
    Potentially, that one-click-away-from-a-news-subscription installed base could bring in lots of new, paying readers for subscriptions, week passes, and various special editions. Apple says to the publishers: We’ll rent those subscribers to you, but you won’t own them — they are ours. Taking a pro-privacy stand, always good for the masses, Apple says it is willing to ask new subscribers, coming through the Apple store, whether they want to “opt in” to “share your information.” The publisher would like your name, email, and ZIP code so it “can send you messages about related products” in accordance with their privacy policy. Fat chance a lot of them will take that bait.

    So, unless new customers opt in, they’ll presumably be getting app products with as little relationship to the publisher as an iTunes buyer of a Springsteen track has to Columbia Records. Publishers won’t be able to market to them, or presumably (but not certainly) customize their reading or shopping presentations — both hugely important in the years ahead.

  • Today, though, doesn’t Apple have a new competitor in Google’s One Pass, which undercuts Apple’s 30-percent revenue share by two-thirds, asking publishers for a 10-percent cut? No, not really. If a publisher wants to reach those 160 million iTunes account holders, it looks like Apple is saying, “We’ll do that selling and send you 70 cents on every dollar you charge.” If you want to buy from the iTunes store or any iNewsstand to come, the only vendor will be Apple. Where Google’s One Pass comes in is as a competitor to Journalism Online’s Press+.
    Until yesterday, if you were a news publisher who wanted to start charging for digital content, you had two major choices: 1) build it yourself, as The New York Times, the Dallas Morning News, and Memphis’ Commercial Appeal, among others, are doing, with and without outside help; 2) partner with Journalism Online. JO would do the commerce and authentication, connecting up databases of print subscribers with digital sign-ups. Though the publicly known JO take has been seen as a 20-percent revenue share, JO co-founder Gordon Crovitz told me yesterday that the revenue share number can “get meaningfully below 10 percent at larger volumes.”So, on the one hand, we have newspaper companies — with commerce partners like Journalism Online or Google taking a 10- to 20-percent revenue cut as they extend their print franchises digitally — and, on the other, we have Apple wanting 30 percent to bring in new digital customers. With Apple’s new policy, these may make two separate islands of selling.
  • Isn’t it great that Apple has such a strict privacy policy, collecting only certain pieces of profile info, if buyers opt in? That’s their strict policy for publishers. Remember that Apple’s 160 million account holders have provided names, e-mail addresses,  credit cards — and lots of preferences. We gave those up willingly way back. And you can bet that Apple plans to use that data to do two kinds of targeting in the future: 1) targeted advertising, through its iAds program, initiated last year for iPhone and iPad ad placements; 2) targeted content (and music and video and…) buying, as it collects all the aggregate information about its customers’ reading, browsing, and buying habits over time. Over time, Apple becomes more like Amazon in anticipating our very wants.
  • Is Apple’s subscription program a Trojan Horse for iAds? Well, iAds are certainly a big push at Apple, and I’ve heard that Apple has said it needs more inventory (ad space) for six-figure-campaign iAds, which is one reason that signing up lots of tablet-based news products makes sense. The subscription program, though, is probably a horse of another color. Add up the 30-percent take — if it could stick — on newspaper and magazine subs, Hulu and Netflix subs, and lots more recurring revenue, though, and that’s a golden horse. In fact, if iAds were a front-and-center goal, Apple would be smart to offer package deals to its new subscription partners — lowering those 30-percent subscription revenue shares as partners agree to take Apple-sold iAds into their tablet products.
  • What about publishers’ abilities to sell targeted ads through the tablet? Now, that’s a hornet’s nest. I’ve talked to a number of publishers and app developers, and they are all unclear on just how much in-app tracking of user behavior Apple will let them do within apps. So, here, we have questions of just how trackable tablet behavior is: with apps, no cookies. Then we have the further question of what Apple will allow, invoking…privacy. That’s a huge question as readers move quickly from print to tablets: Publishers must hope and pray that the print ads, with print-like pricing, move along with them, and targeting is the key technology to do that.
  • What’s the likely consumer result? Someone’s got to put together an effective third-party news (plus) app store. You’ve got all kinds of players here, potentially, like Yahoo’s Livestand, the start-up GetJar, and companies like Ongo, trying to cross-title sales. They will get into the fray, joining the single-operating-system app stores, from Apple to Palm to Blackberry to Nokia. Wouldn’t it be great for a news consumer to go to one place — in addition to the news site itself — to get a clear package of digital news offers, with small commissions going to the selling site?
  • What’s a solution to the mess? Well, there are any number of solutions. Here’s mine: Apple goes ahead and sells digital subscriptions in its store. On revenue shares, it takes 30 percent the first year, 20 percent the second year, 10 percent the third year, and 5 percent each subsequent year the sub is live. It further offers “add-on” products, like print subscriptions and even subscriptions to other non-Apple digital products, with those sales enabled through a publisher’s site; Apple gets a 5-percent revenue share for the first year on any of these add-ons. Apple shares with publishers the user data it already knows and the data to come, still being a major victor here because it alone sees the big picture of news behavior aggregated across all news apps. Apple incents publisher partners to gladly join in the iAds program, giving them preferential revenue shares in the program. Do all that — and everyone can advance.
POSTED     Feb. 17, 2011, 10 a.m.
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A conversation with David Rose, little magazine veteran and publisher of Lapham’s Quarterly
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