Commentary

Apple's Change To App Store Fees Should Help Smaller Publishers

Apple this week said it will change the fee structure for the App Store, which is the main gateway for its customers to download apps to its 1.5 billion active devices worldwide. The changes are likely to help smaller publishers that sell subscriptions through the online marketplace, and will have a more muted effect on bigger media companies.

In announcing the change, Apple said it wanted to help smaller businesses struggling during the coronavirus pandemic. On Jan. 1, the company will cut the commission it charges from 30% to 15% for any business that makes no more than $1 million through the App Store, which typically includes in-app purchases and download fees. The fee will stay at 30% for businesses that make more than $1 million, excluding the commission payments to the company.

This change will mean that any publisher that makes less than $1 million on subscriptions processed through the App Store could save as much as $150,000 in fees. Because many news and magazine publishers offer their apps for a free download, they won't feel any effect from the change. Instead, they will save money on first-year subscription commissions that are now 30%.

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Apple currently drops the commission fee from 30% to 15% after the first year, which means its upcoming change won't affect any publisher with longer-term subscribers.

For bigger publishers that make more than $1 million a year through the App Store, the company isn't cutting the fees on first-year subscriptions. They shouldn't expect to save any money from Apple's changes, because the change doesn't operate like a progressive tax where one rate applies to the first $1 million, and another rate applies to higher amounts.

If a publisher's App Store proceeds drop below $1 million, the publisher can apply for a fee cut in the following year. However, if a publisher's revenue rises to more than $1 million for the first time, the fee immediately gets raised from 15% to 30%.

Because the fee structure is being maintained at 15% for subscriptions after the first year, bigger publishers won't see any effect on the charges for longer-term readers.

When it comes to Apple, publishers are more concerned about the tech giant's planned changes to the software that runs iPhones, iPads and Apple TV streaming devices. A future privacy update will notify people when apps want access to a device identifier that Apple assigns to its products, asking them to consent to being tracked.

Because most people are unlikely to opt in, audience targeting will become more difficult, likely diminishing the value of publishers' programmatic ad inventories. However, as I've written in the past, the change will mean some advertisers will shift to contextual-based ad targeting, which could work in favor of publishers that provide a brand-safe environment for marketers.

Apple is unlikely to feel any significant effect on its earnings, considering that only 0.2% of apps make more than a $1 million a year and will keep paying the higher fee, according to app researcher Sensor Tower data cited by The Wall Street Journal.

Much like the rest of the "winner-take-all" economy, the top 0.2% of app publishers make 92% of the revenue in the App Store. In many ways, that revenue distribution mirrors the broader condition of the publishing industry.

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