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Pushing to the future of journalism — A project of the Nieman Foundation at Harvard

Apple makes its subscription rules more friendly to news organizations; but were they really the target?

Interesting news on the Apple/news-biz front: Apple appears to have backed away from its requirement that subscriptions to content (such as a newspaper or magazine) be offered at the same price as in-app purchases as when they’re offered externally. In fact, Apple seems to have ended the requirement that such subscriptions be offered as in-app purchases at all. Kudos to MacRumors for spotting the change.

Confused? Here’s a hypothetical. Let’s say we decided to start charging a subscription for the Nieman Journalism Lab iPhone app — $19.99 a year. Under Apple’s previous rules, we would have been required to offer that subscription through Apple’s payment system — under which Apple gets a 30 percent cut of the revenue. Which means we’d end up with only $13.99. And those rules would have prevented us from offering differentiated pricing to make up the difference — say, $28.99 if you buy it through Apple, $19.99 if you buy through

Now, under these new rules, we could choose to differentiate our pricing if we wanted — or we could even only sell subscriptions through and cut out Apple altogether.

This is, at least on the surface, a significant win for the news business (and other content industries). As I’ve written before, news orgs hated the idea that one of the few routes they see to serious revenue growth — mobile apps — was going to have a toll-taker on the side of the road. At least now they know their pricing choices can once again fully be their own.

But I say “on the surface” because I suspect this move will have, at least at first, more symbolic import than real impact. That’s because it’ll be challenging for news orgs to take advantage of their two new freedoms news orgs.

News orgs seeking to differentiate price based on platform will run into serious customer resistance. To go back to my hypothetical example, we could now charge $28.99 for the same product bought one way that we charge $19.99 for bought another way. But is that realistic? First, is a price-sensitive consumer base, still slowly being lured toward paying for news at all, suddenly going to be willing to pay an additional 30 percent premium for an easier purchasing system, just so The Morning Gazette can get its books straight?

And is the tradeoff in customer confusion and annoyance going to be worth it, particularly at a time when news orgs are trying to make digital pricing as simple as possible? Witness the flak The New York Times took for having “too complicated” a pricing model for its digital subscriptions. Now imagine each of the Times’ three tiers suddenly had two different price points each, depending on where you click a “Buy” button!

— Apple’s purchasing system provides real value. Whether or not it’s 30 percent value, you can debate. But there’s no doubt that the 225 million credit card numbers Apple has tied to iTunes accounts, combined with the ease of one-click purchasing, make it a lot easier to get customers to part with their money.

I was looking the other day at ProPublica’s fine iPhone app, which has a donate feature. Apple doesn’t allow donations to nonprofits to go through its payment system, so instead of being able to click once, type in my password, and give, I was asked to 15-field form, complete with 16-digit credit card number, if I wanted to hand over some dough.

If the product you’re selling is an iPhone app, generally speaking, people will want to pay for it on their iPhone. And the one thing the new rules do prevent is linking directly from an app to an external site for payment.

So I suspect that the number of news orgs who (a) feel comfortable with differentiated pricing or (b) are willing to completely abandon in-app sales will be pretty small. I’d wager the path news organizations will take around Apple’s cut is the one they’ve already been taking: bundling non-Apple products with Apple products. Note that you can’t buy just access to The New York Times iPhone app; you buy access to plus the app. Or how the cheapest way to get full NYT app access is…subscribing to Sunday home delivery. Or how The New Yorker’s iPad app is available for $59.99 a year — unless you also want print, in which case it drops to $39.95.

Each of these moves indicate publishers want to exploit the attachment they have to customers outside the app — both because it promotes other revenue-generating products (most notably print) and because it keeps more revenue out of Apple’s hands. I suspect that’ll continue to be the route most will pursue, even with the extra freedom Apple’s granted them today.

The start of a new relationship, or the beginning of a different battle?

Watching Monday’s Steve Jobs keynote at WWDC, it struck me that Apple’s new Newsstand feature for iOS 5 was just about the most openly pro-news thing Apple’s ever done. Apple’s major mobile OS rival, Google, has gone out of its way to try to make nice with newspapers and magazines: tweaking Google News in their favor, offering financially appealing subscription models, giving money to news innovation, and so on. Apple hasn’t gone for that kind of stuff. With both Newsstand and these friendlier terms for subscriptions, it’s almost enough to make you think Apple’s changing its heart a little on the subject.

But then you go back and read the new rules:

11.13 Apps that link to external mechanisms for purchases or subscriptions to be used in the app, such as a “buy” button that goes to a web site to purchase a digital book, will be rejected

11.14 Apps can read or play approved content (specifically magazines, newspapers, books, audio, music, and video) that is subscribed to or purchased outside of the app, as long as there is no button or external link in the app to purchase the approved content. Apple will not receive any portion of the revenues for approved content that is subscribed to or purchased outside of the app.

…and you get the impression the news business is almost besides the point here.

The story from the journalism world in recent weeks had been that Apple had won the subscriptions game — that bigs like Conde Nast and Hearst had signed on to Apple’s model (however further negotiated those deals were) and that beaten-down newspaper companies were ready to “comply” with Cupertino’s demands.

But note that the example given in 11.13 is a buy button for a digital book. The most vexing question about Apple’s subscription policies has been how it impacts the really big digital content players — like Amazon, who makes even the mighty New York Times look like a market cap rounding error. Apple is bracing for a battle royale with Amazon over the iPad-competing tablet it’s expected to release this year. Amazon is probably the tablet-maker Apple would worry about most.

Apple’s previous in-app purchase rules were also uniquely tough on Amazon, because they sell more different digital content items than just about anyone. (Amazon would have had to offer all 950,000 of its Kindle ebooks for sale through Apple, with that 30 percent cut, just to make Kindle books readable on Apple products, under the previous rules.)

The new rules make things more clear. Amazon doesn’t have to sell its Kindle books through Apple’s store to make them readable in an iPhone or iPad Kindle app — a requirement that would have been logistically almost impossible to meet and might have pushed the Kindle app off of Apple’s platform altogether. But it can’t have a “Buy Kindle Books” button inside that Kindle app, either.

I suspect that, when this all shakes out, we’ll find that this wasn’t meant as a favor to the news business, a concession, or the beginning of a beautiful new relationship. We’ll find that the new generation of content giants were the real targets.

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  • Anonymous

    My understanding is another big problem for Kindle would have been that the number of discrete “products” that can be technically made available via Apple’s in-app purchase is much, much smaller than the number of available Kindle books. I’m not certain if that limitation still stands, but it’s certainly moot now.

  • Stonewash DD&AG

    We’ve been trying to figure out what the rules mean for our products and clients. Any thoughts on our two grey areas mentioned here: #iOS5 

  • PKafka

    Smart. I do think this is in large part aimed at Amazon. But it also makes life easier for other companies that Apple would like to keep on the platform, notably Netflix. This may also prevents stand-off with the Wall Street Journal and Rupert Murdoch — who as you might recall has gotten much closer to Steve Jobs in the last year.

  • Stonewash DD&AG

    It’s great news for companies like Netflix, but for publishers (where there titles are also available in print) the rules open up a number of complications. It will be interesting to see how kind Apple intend to be as publishers approach these grey areas.

  • Joshua Benton

    That’s my understanding too. And aside from that technical limitation, there’s no way Amazon was going to build a new sales infrastructure just for the privilege of giving Apple 30% of its Kindle revenues.

  • Joshua Benton

    Very true on Netflix. Re: WSJ, I think big institutional forces like the NYT and WSJ could be the few who could afford to eliminate the in-app subscription button — because just about anyone who would want to read the NYT in iPad app form is probably already reading it in some other form (like on the web). So they’d have a better job at controlling that relationship than something that’s iPad-native (like, say, The Daily or

  • Anonymous

    Good post Josh. I did an analysis for, and I the thing that sticks out to me is that the terms and the new Newsstand seem to inhibit publishers selling their own subscriptions outside of Apple:

    I’d appreciate any other thoughts and comments from people on that.

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  • Joshua Benton

    I think that’s a really good point — during the keynote, I was thinking: What does it take to get into Newsstand? Can free apps get in there? Can non-print-dominant apps get in there? Tying it to subs makes sense (in terms of how Apple’s thinking about it — not sense in the broader, er, sense).

  • Anonymous

    My bet is that they are shifting from the “stick” (i.e we want 30% no matter what) to the “carrot” of Newsstand (we have an attractive, prominent, and positively differentiated place for your news and magazine content to appear on our devices, and if you cut us in for 30% you’ll get to be in there).

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  • Scott Hershkowitz

    You guys point out Netflix, which is key to any connected platform, and would probably been forced out of the App Store had Apple not blinked.  And I think Netflix, Rdio, Spotify, Rhapsody would be sorely missed from the app store.  Their apps provide a lot of value to users on iOS devices.

    But, consider the top grossing App in the app store last year — MLB At Bat.  MLB sold a $14.99 subscription that enabled purchasers to authenticate their MLB.TV subscription ($99 or $119).  MLB shares 30% on the former, but nothing on the latter.  They throw Apple a small bone, but use the platform to sell their higher priced, premium video subscription of which they retain 100%.

    About a month ago, MLB started offering a stand alone mobile video package on — not through in-app purchase.  This was clearly a shot across the bow, and it absolutely violated the coming rule changed.

    And in my opinion, MLB is a small fish.  I believe that TV Everywhere is the future of video consumption.  If Apple did not repent on the in-app purchase front, then Apple would have thrown a curve ball to some real heavy hitters; Time Warner (HBOGO), Disney (Watch ESPN), Comcast, Cablevision, Time Warner Cable…the list goes on.  

    These companies are the biggest content producers and distributors in the country (maybe the world).  If Disney, or Comcast, or Time Warner decided to pull their films or TV shows from iTunes in retribution for not being able to over their TV Everywhere apps, it would have a huge impact on available catalog.

    Anyway, I am glad Apple showed some flexibility.  It is a very good thing for the ecosystem.

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