Apple's Steve Jobs Finally Makes iPad Subscription Offer to Wary Publishers

Some Concessions, but Device-Maker Will Take Customary 30% and Control Subscriber Data on App Store Subs

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NEW YORK (AdAge.com) -- When Apple introduced its iPad last spring, some of the first apps were iPad editions of magazines such as Time, Men's Health and Popular Science. But something was missing: the ability to sell subscriptions to those apps.

Now that's changed. Apple announced today that it would enable subscriptions, a key business model for all types of media, including magazines, newspapers, music services, video and games. But as is typical for Apple, its plan includes tight controls on pricing and customer data, as well as its customary 30% cut of revenue.

App Store subscribers will have to opt in for publishers to see their data.
App Store subscribers will have to opt in for publishers to see their data.

In some regards the plan appears to meet many publishers' key demands. They can sell iPad subscriptions on their own websites, keeping 100% of the revenue and collecting all the customer data they want. And they can elect to give existing customers free access to the iPad app, an ability that Time Inc.'s People magazine was able to secure but more magazines have not. But when a subscription originates within the App Store, where a huge proportion of sales will naturally occur, this plan may still leave publishers wanting.

Netflix and Hulu Plus, for example, are currently on the iPad with apps that authenticate subscriptions sold elsewhere, subscriptions on which Netflix and Hulu Plus keep all the revenue and subscriber data. But any new subscribers who sign up through the App Store will give Apple the opportunity to take 30% and a direct relationship with the customer.

Apple doesn't automatically pass on any information on subscribers who sign up inside iTunes, nor on what they watch or read within the app. Apple will allow publishers to ask subscribers to share information such as their name and ZIP code voluntarily. Last week a magazine executive said that approach wouldn't satisfy some publishers. "It depends on whether you're optimistic on the opt-ins or pessimistic," the executive said. "Some people would say that's a good start. Others would say nobody is going to opt in."

"Our philosophy is simple -- when Apple brings a new subscriber to the app, Apple earns a 30% share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100% and Apple earns nothing," Steve Jobs, Apple's CEO, said in a statement.

There are other caveats that will give some media owners pause. For starters, Apple requires that publishers offer their subscriptions through iTunes at the same price or lower than elsewhere, even though Apple's 30% cut renders those subscriptions less profitable. Publishers are getting much more generous terms from Google, for example, which sees the content as necessary to drive adoption of Android.

Apple's announcement today doesn't mention any publishers participating in the plan beyond Rupert Murdoch's tablet newspaper, The Daily, which went on sale earlier this month. The Daily sells for 99 cents a week or $40 a year on the iPad. Other tablet editions are coming later this year. The app prompts subscribers: "Share your information? The publisher would like your name, email, and ZIP code so they can send you messages about related products in accordance with their privacy policy." Subscribers then must choose between "Allow" and "Don't Allow."

While the plan continues Apple's standard revenue sharing for anything sold through iTunes, the arrangement is still far from standard for publishers, which have long enjoyed direct billing relationships with their subscribers. "The only person standing between us and our subscribers was the mailman," one publishing executive said recently.

Data on subscribers is one of publishers' most valuable assets, a trove of information that they both use to pitch additional products to their subscribers and sell to other marketers that want to do the same thing.

Time Inc. executives last week said they were continuing talks with Apple and were "confident" they would be able to reach an agreement to sell subscriptions through iTunes. Is this it? For the moment, Time Inc. execs aren't talking. A spokeswoman declined to comment, as did executives at other magazine companies.

Publishers say privately that terms are going to vary widely among online distributors, depending, of course, on their leverage and the amount of production and back-end work they agree to undertake.

"Subscriptions across digital bundles and print bundles will not be a one-size-fits-all solution," Time Inc. Chief Digital Officer Randall Rothenberg said last week. "Walmart has a different way of retailing than Duane Reade has. We're still in early days of the evolution. It's only been nine months for the world to learn a new form of retailing."

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