Commentary

Apple's 'Netflix for Magazines' Is Terrible for Publishers

Apple is asking publishers to hand over half of the subscription revenue they earn from the tech giant’s planned “Netflix for magazines,” The Wall Street Journal reported this week.

The iPhone maker doesn’t add enough value to media distribution to merit such onerous fees, and publishers should demand a better return on their investments in original content.


Apple aims to add a paid tier to Apple News, its news aggregation app that currently provides a limited amount of free content to readers. Apple is desperate to boost revenue and wean itself from an overdependence on the iPhone, whose sales dropped 15% during the key holiday season.

The tech giant last month provided a glimpse of Apple News with the first test version of iOS 12.2, the mobile operating system that runs iPhones and iPads. The iOS update mentions a “bundle subscription” several times, possibly indicating the tech giant is planning a service that combines music, magazines and TV shows.

Publishers need to consider the risks and rewards of trying to reach the 85 million people who use Apple News, which is available for free on 1.4 billion active devices including 900 million iPhones.

The number of people willing to pay for magazine content is likely to be much smaller. Only 16% of Americans are willing to pay for news, according to a Reuters Institute survey last year.

Publishers also need to avoid an overdependence on a powerful tech company like Apple for revenue, as last year's devastating experience with Facebook showed. The social media giant made changes to its news feed to improve the user experience and triggered a massive drop in revenue and readership for many publishers that have since cut staff or gone out of business.

Apple News now lets publishers keep 100% of the revenue from ads they sell in those free articles, but Apple requires publishers to sell the ads in a customized news format that’s different from industry standards. Publishers also get to keep 70% of revenue from ads they don’t sell, the Journal reported.

That incremental revenue is certainly appealing, but publishers need to avoid cannibalizing subscription revenue from other sources. After taking its 50% cut, Apple would pool the remaining revenue and distribute it among publishers based on the amount of time users spend with their articles, the Journal reported.

That revenue scheme doesn’t sound promising, especially for publishers that can command higher subscription prices by charging readers directly. Publishers that go direct also get key data about their readers to underpin their marketing programs. It’s not clear that Apple is willing to share its user data with publishers, given its past statements on preserving customer privacy.

The Financial Times has twice balked at Apple’s data-sharing policies, and still isn’t available on Apple News.

Instead, the financial newspaper in 2017 created a new mobile app for Apple devices in the United States and the United Kingdom, and devised a way to get around the App Store’s fee structure. The FT made new readers pay for a subscription on its website, then use their login information to access the app.

Streaming media pioneer Netflix worked out a way to avoid paying subscription fees to Apple’s App Store, which takes a 30% cut of any initial download fees and 15% of subscription revenue after one year.

Netflix last month stopped letting new users pay for subscriptions in its iOS app, which will save the company from paying Apple millions of dollars. Instead, new sign-ups need to pay for a subscription at the Netflix website and then log into the iPhone app.

Netflix may end up creating a free service that is ad-supported and resembles traditional TV, but that depends on the market dynamics of the streaming media industry. As the millions of subscribers to Netflix and premium cable channels demonstrate, many viewer are willing to pay a subscription fee for an ad-free experience.

Other publishers may decide that the FT and Netflix’s approach is the best way to collect 100% of subscription revenue, gather more data about their audiences and sell ads.

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