How unpleasant can Apple make the experience of publishing apps for the iPad? In Europe, the disincentives are piled high. The cost structure behind every £1 of revenue earned by a UK paid-app publisher has looks distinctly nasty:
- In the UK, publishers will continue to pay Apple 30%. Thanks to Apple’s decision to ban in-app links to publisher’s storefronts, it will now be impossible to evade this “tax”. >> 70p left
- Next, publishers pay the taxman VAT at 20% >> 56p left
- To this, let’s add the costs of delivery: it costs money to push all of that photography and streaming video out on to the web. As if we needed reminding, Paul Lomax, CTO of Dennis Publishing, tweeted recently that video is “the ‘interactive’ bit… Costs a LOT to produce too”.
- App production isn’t integrated with print production operations that largely rely on Adobe, Apple’s mortal enemy. As a result, in the words of the statement put out by the European publishers who met in London yesterday to discuss Apple’s subs plan, producing iPad apps remains “complex and expensive”. The pay-off? Many publishers aren’t bothering. Many of those who are bothering have published mediocre apps.
- The future looks bleak, too: in an all-digital future, publishers will need to fund the cost of reporting, writing and editing from those incoming app revenues. In this respect, they won’t be too different from streaming music services today, who pay 70% or 80% of their revenues to copyright holders and cannot afford to pay Apple a 30% fee without making a loss.
What does the response of publishers to Apple’s subs plan tell us? If any, or many, are feeling like this, they’re not saying so publicly — yet. However, as the dust has settled, four schools of thought have emerged.
1) The Pragmatists
Future Publishing went with Cupertino’s plan without hesitating. Bonnier, the Swedish magazine publisher, will use both Apple’s in-app subscription system and Google’s One Pass alternative. Sara Ohrvall, Bonnier’s head of R&D, had this to say:
We prefer to play the game and try to influence it while playing. We. . . see no reason to stand outside the playing field being angry. We are all just different entities trying to find our position in the value chain.
Note that user expectations play a large role in these decisions. Paid Content references this in its coverage:
unlike the FT and other titles which already charge successfully, publishers like Future, whose digital charging odyssey was so far modest, have only growth to find in Apple’s subs…
Future says digital sales of T3, which was already available as a Zinio replica, rocketed by 5,000 percent to 10,000 per month thanks to its single-copy iPad launch…
The pragmatists will continue to test what’s on the table, even as they push for better terms or allow others to do the pushing.
2) The (Un-)“Bothered” Party
There’s a group of hard-boiled publishing folk who can’t understand consumer mag publishers’ fascination with the iPad. (Writing this week, Adam Tinworth described the idea that iPads “will magically recreate our content packages of old” as “rather bizarre”. On this basis, I suppose Apple’s policy doesn’t matter too much.)
The unbothered are roundheads. Tey distrust cavalier consumer publishers who talk of “immersive” consumption, lean-back reading, long dwell times and premium CPMs. For the roundheads, the world remains bleak: readers are promiscuous, attention is fugitive and monetization is hard, ugly, work. They can’t see how the iPad changes this reality. (It’s got a browser, right?)
Of course, speaking of browsers, the unbothered also like to look ahead to widespread adoption of HTML5. At which point, all of this talk about paying tolls to Apple will disappear in a puff of smoke. . .
3) The Free Marketers
There are those, like Shane Richmond, who take a cooly free market line. Apple, he says, has set its subs commission at 30% “because they want to make money and right now they have an audience that developers and publishers want to reach.”
Some free marketers dislike the way in which some publishers are moaning. Moan: that’s the word used by the FT’s Tim Bradshaw on Twitter this morning to describe Apple’s antagonists.
Others, like Marion Maneker, a New York-based publisher, and James McQuivey of Forrester Research, toe the free market line, but tilt away from Apple, toward the publishers. In this view of events, Apple is making money by gouging publishers. Maneker draws an interesting parallel with property developers who build shopping malls:
Mall developers generally charge their tenants a fixed fee plus a percentage of sales as rent. So Apple is following the same model. But the rents malls charge are under 10% of revenue.
McQuivey has this to say:
In the app world. . . the biggest incremental cost of a content experience is its creation. Once it is created and properly formatted for delivery – costs both born by the publisher or producer – the distribution of the digital asset is nearly free. Managing the customer relationship, maintaining secure login and credit authorization processes, delivering the bits to the device – these are all negligible costs that the platform operator bears as a service to the market. Any claim that these costs are burdensome is exaggerated.
True enough. And the evidence does suggest that Apple’s 30% is merely another staging post on the way to zero (or thereabouts). Eighteen months ago, Amazon was taking 70% of content revenues generated by the Kindle. Then Sony came along and reduced the platform owner’s stake to around 50%. Now Google has set a new baseline of 10%.
Apple’s 30% “tax” won’t be long for this world. The problem for free marketers is that there may be a much more stubborn problem in the mix: control over the customer relationship. The participants in this drama may not be so rational when it comes to data.
4) The Antagonists
There’s another problem with free market coolness. You can see it in Ian Betteridge’s sadness that Android’s coming-of-age is “12-24 months” away.
Even then, Android may remain a distant second to the iPad. As Jason Kincaid puts it at Techcrunch:
[A]s people grow up in households where iOS is computing, it’s going to become harder than ever to get them to switch to less restrictive platforms down the road. Even when, heaven forbid, Apple starts making products that simply aren’t as good as the competition, or publishers and developers try to move to a different platform.
Yesterday’s meeting of European publishers at a venue near Heathrow airport hinted at the possibility of “antagonistic actions” against Apple. Fairly clearly, however, the publishers would prefer to negotiate.
This is a large group, and opinions are varied. But the sampling of objections to Apple mentioned in the publishers’ statement this morning is interesting:
- Censorship: In Denmark, Elkstra Bladet was “refused from iTunes Store” because it features a semi-naked girl on its page nine. Another magazine about Android was denied iPad distribution. European Parliamentarians have raised both of these cases with European Commissioners.
- Communication: According to Paid Content, many publishers “feel out of the loop because Apple’s level of engagement has varied and is. . . insufficient”. This will ring a bell with anyone who witnessed Google’s early days in Europe. In response to media anxiety, Google built its own revenue-generating diplomatic corps. These sales people and execs sold paid search to media companies and presented the company in a favourable light. Apple, a profoundly centralised and deeply US-centric company, needs to do the same. Google has a vast lead over its rival in this area.
- Certainty: There are clear rules of the road in print distribution. Content producers need the same for apps. They’re not getting it. For a more explicit take on this, take a look at Ken Doctor’s analysis of the uncertainty surrounding all-access and bundled online-offline subscriptions in Apple’s new scheme. If you want to get really depressed about the heedless nature of Apple’s policy-making, try sampling the views of Jim Dovey, a Canadian IOS developer.
- Control: From the publishers’ statement: “A direct relationship with customers is crucial for publishers so they can: a) provide products and services; b) set pricing policy, build bundles on their own and set prices dynamically; c) see if customers like the product, price, and the total experience; d) improve their products, services or policies accordingly; e) inform customers about existing and new products, services or policies.” (There’s more, much more, to be said about data, and Apple’s approach to it, but that can wait for a separate post.)
What all of this makes clear is that a commission of 30% is the least of Apple’s problems. Where economics and culture, Steve Jobs and his team need to answer a series of much bigger questions.
At some level, Apple knows that it needs to provide consumers with content. What else is the iPad if it isn’t a machine for content consumption?
To get what it needs, however, Apple will need to work with media owners. More than lip service is required. Lock-down will need to be tempered with openness. Control will need to be balanced with collaboration.
Why? Well, for one thing, Apple cannot vertically integrate content production. (Wisely, the company’s shareholders would never allow the company to own a film studio, or a newspaper.)
Second, of course, the old saying remains true: It’s rarely wise to pick fights with people who buy ink by the barrel.
It’s not just the streaming music services that are thinking about this. As Ken Doctor puts it:
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.
Bending to the will of outsiders goes against Apple’s Promethian and protean instincts. It cuts across the company’s single-minded focus on user experience and shareholder returns.
And yet it’s going to be necessary. In one way, of course, this is starting to look like a re-run of Google’s decade-long encounter with the media biz. That particular entanglement isn’t over yet. But the trajectory became clear a few years back. Google, the conquering hero, increasingly found itself accomodating the wishes and anxieties of those it had conquered, the inhabitants of Medialand.
Apple won’t be as meek and diplomatic as Google. But make no mistake: a similar fate awaits it in the mass market.