Thursday, September 23, 2010

Newspapers reportedly demanding control of subscriber information in digital newsstand negotiations with Apple

It's always hard to tell what is going on deep within negotiations since the parties involved like to keep information to a minimum -- unless, of course, coming out in public will put a little pressure on the other side.

That seems to be what is going on in the (informal?) negotiations between newspaper publishers and Apple over the company's plans to create a digital newsstand. Word has leaked out several times over the past few days that newspaper's were not happy with how Apple proposes handling newspaper subscriptions bought through their iOS devices.
As things are now, a reader buys an app directly through the App Store; Apple already has the customer's information on file and so knows who bought the app and at least some information on that customer; that information does not make it to the developer of the app -- at least not directly; if a digital newsstand is created using the existing model this situation would not change.

Additionally, there is some push back concerning the revenue split currently being used by Apple -- Apple gets 30 percent of all revenue derived from app sales, and 40 percent from advertising. But reports I've read seem to suggest that Apple wants money from in-app advertising, but that seems like simple poor reporting, what the 40 percent split represents is the ad split that occurs if the app uses iAds, Apple's new ad network and platform. Publishers have known about the iAd revenue split since April 8 when Apple unveiled its plans for the platform, complaining now seems like a simple negotiating stance -- besides, how many major publishers plan on using iAds?

It is possible that Apple has introduced new requirements to be involved in the new digital newsstand, but more likely it is simply trying to enforce the rules they already have created.

Some of the loudest objections seem to be coming from News Corp., the Murdoch owned media giant. "Don't concede control of the customer -- just don't do it," Todd Larsen, president of Dow Jones & Co.(WSJ) is quoted by AFP as saying.

Apple's goal is to create an organized digital newsstand -- the App Store desperately needs this. In this regard, the tech giant probably sees no reason why newspapers shouldn't continue with the standard 70/30 split on app sales -- if newspapers do want to be part of the newsstand they would still be subject to the 70/30 split for the apps outside the store.

The problem that has arisen is that some apps have been approved that have created an end-round on the system. The WSJ app, for instance, is free. But readers are then required to purchase a subscription outside the app. In this way, the WSJ is able to keep 100 percent of the revenue. I'm sure Apple thinks this is abusing them. Why should they let any developer in for free when, in the end, the end user must still pay in order to properly use the app? No, Apple wants purchases to go through them -- this cuts down on fraud. (The alternative would be a fee system to enter the App Store, instead of a revenue split.)

Like all negotiated agreements, there are endless possible outcomes, but I think this is where we are headed:

  • Apps within the digital newsstand would have to adhere to certain guidelines including in-app subscription revenue splits -- whether they would be required to use iAds is doubtful since the major publishers would want to retain ad control -- but if they do, they would be required to have the same revenue split as everyone else who uses the service. To entice people into the newsstand, Apple could allow publishers access to subscriber information, or alternatively, encourage publishers to incorporate a registration mechanism as part of the subscription process.
  • Publishers outside the newsstand could continue doing what they want, but Apple would retain reader information. But out of app purchases could be eliminated, forcing some publishers to decide whether they want to continue to be part of the iTunes App Store at all.
Like all negotiations, some of the demands made may be simply negotiating stances. For instance, stating that they want a better cut of the revenue is probably a non-starter with Apple. Newspapers may be high profile developers within the App Store, but they represent such a small percentage of the apps currently available that Apple would be slitting their wrists in cutting a special deal with them.

Additionally, I'm not sure I like the idea of Apple sharing information with developers. I, and every other iPad and iPhone users would demand an opt-in process. To me, the logical solution would be to introduce a registration step in the purchase process: "you want to buy an annual subscription to the NYT? Then you must fill out this form." That seems logical and not unfair -- so long as readers are aware of the process before purchasing.
“Don't concede control of the customer” -- Todd Larsen, president of Dow Jones & Co.
But from Apple's perspective the complaints of publishers probably seem hypocritical. Do newspapers demand information from their readers when they put a quarter in the box to grab that morning's paper? And what the ad split issue? Who is selling the ads, paying commissions and managing copy? Wouldn't iAd be used by most publishers as a way to supplement their own ad sales, not take them over?

One thing for sure, Apple would like to wrap this up as soon as possible. By the end of the year lots of new tablets will be on the market, and if Android-based tablets gain enough of a foot hold it is possible that Google would be in a good position to create its own digital newsstand. On the other hand, no matter how well those new tablets sell, the iTunes App Store will continue to dominate the digital media landscape for quite some time. The major media companies are already committed to the platform, so pulling out now is probably not an option.