Will Apple Subscription Demand Destroy the iPhone

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The Apple iPhone and Apple iPad are some of the most revolutionary and beloved devices on the planet. So many people use them, in fact, that providing a user friendly, integrated means for publishers to sell and install content on these devices is a valuable service that Apple should be compensated for.  In fact, Apple has decided that system is worth a 30 percent commission on any subscription sold via the App Store.

angry-computer-userHowever, Apple may have gone too far with its latest demands for apps that appear in the the App Store.  Any publisher that has an app in the Apple AppStore that offers a content subscription anywhere, including applications or services not available in the AppStore or even on iPhones or iPads, must also offer the same subscription at the same price from within the app. 

So far, so good.

However, any such subscription is subject to a 30 percent commission payable to Apple for the right to be included in the AppStore.

It seems that some publishers may be balking at this demand.

Here is how it works in Steve Jobs’ head.

A publisher might be able to sell 10,000 subscriptions on their own via their own website or through another device’s app store.  But, because of the popularity, ease of use, and integration of iPhone and iPads with Apple’s App Store, the same publisher could sell many more subscriptions, thereby justifying the charge made by Apple.

To some publishers, however, this is starting to sound like a ransom demand from Apple.  Their contention is that while Apple has made a great product and has been rewarded with high profits and sales of their electronics, the customer buying a subscription to a magazine or other publication is buying the value of the publisher, and Apple doesn’t have any right to those sales.

There is more at stake here than the math, not the least of which is the publishers’ ability to sell their product how and where they want. However, it is useful to break down the economics of selling subscriptions through the Apple Appstore.

If XYZ Publishing can sell 100,000 monthly subscriptions at a cost of $4 per month, that is $400,000 in revenue.

If XYZ Publishing sells all 100,000 subscriptions via the AppStore, then they lose $120,000 to Apple. That leaves just $280,000 in revenue. Over a year, that is a difference of nearly $1.5 million per year. That is a lot of salaries.

Is it worth it?

That depends entirely on how many subscriptions the publisher can sell without Apple versus how many they would sell with Apple.

If XYZ Publishing can sell just 70,000 subscriptions at $4 per month without using the AppStore, that is the same $280,000 in revenue that they would generate by selling 100,000 subs with the AppStore. But, if they can’t sell anywhere near that number without the AppStore, then Apple’s point is valid and the publishers have no choice but to play ball.

Apple Plays Chicken with Publishers

Here is where things get interesting.

Assume that publishers decide to not support iPhone or iPad apps and subscriptions. If just a handful of publishers go down this path, then there is no real impact on Apple or iPhone and iPad users.  Just like when the Beatles wouldn’t allow their music to be sold on iTunes.

However, if many publishers — or just a handful of the biggest ones — decide not to play ball with Apple and the AppStore, then iPhones and iPads become the devices that you can’t use to access everything. They’re great machines but they just do not have widespread support of all the features and functions that other devices do. Sound familiar Mac lovers?

Apple has already played this game once by declining to support Flash. However, that was a technical decision made to prevent Flash from causing sluggish performance and bad battery life on Apple devices. So far, Apple seems to have won that battle. (If we’re lucky it might finally cause a positive change in how Adobe supports and develops Flash.)

The big question is whether or not the game will play out the same with publishers who can’t really afford to be losing 30 percent off the top.

Consider a Sports Illustrated subscriber who learns that their subscription to the magazine allows them full, free access to all online SI content on any device EXCEPT an iPhone or iPad. Would that sway that user’s decision? What if there is a list as long as your arm of content that you can get anywhere except on an Apple device? Would that be enough to impact Apple sales?

This game was played before by the music industry and Apple’s iTunes store.  The music industry lost. Will the outcome be the same here?  The answer might determine whether iPhones and iPads are short-lived phenomenons or whether they change the world of publishing forever.

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