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Posted at 3:37 PM ET, 02/15/2011

Apple demands subscription revenue from publishers

By Rob Pegoraro

Apple describes the subscription option it just launched for iPhone and iPad applications as a convenience to customers. That it may be. But to any company looking to do business through an app for Apple's mobile devices, it's more like a form of financial hijacking.

The Cupertino, Calif., company's press release is remarkably straightforward in laying out this land grab:

Apple does require that if a publisher chooses to sell a digital subscription separately outside of the app, that same subscription offer must be made available, at the same price or less, to customers who wish to subscribe from within the app.

So with one hand, Apple requires that any application that offers access to extra-cost content or services now let users make that purchase through Apple's App Store as well as the developer's Web site. With the other, it keeps 30 percent of those App Store transactions--and won't share the details of those customers with the developer, undercutting its ability to try to sell other subscriptions.

This is what publishers feared when Apple rejected Sony's e-book application. Except it's worse: As outlined at the end of the press release's fourth paragraph, an application can't even include a link to an outside Web store.

Essentially, Apple proposes to annex a developer's subscription business--then charge that firm 30 percent for the privilege.

That 30 percent figure is the same share Apple keeps from sales of applications. There, it provides valuable hosting services, copious bandwidth and one-click installation and updates. But in providing subscription billing, Apple will do little more than run a cash register.

Apple only cites one exemption: subscriptions that come free with purchase of something else, such as a print subscription to a newspaper. It's unclear how this would change bundled deals that, for example, combine iPad and print access at a discount.

Web-based applications remain unaffected by Apple's App Store rules.

Representatives for Netflix, Hulu and The Post declined to comment. Publicists at Amazon and the Ongo news service (as well as Apple itself) have yet to reply to e-mails sent this morning.

Time Inc., meanwhile, already seems to have given up on Apple and is instead bringing publications like Sports Illustrated to Google's Android and HP's webOS.

Yes, customers seem to like buying through the App Store, and that may itself accelerate subscriptions. Apple quotes chief executive Steve Jobs as saying: "Our philosophy is simple--when Apple brings a new subscriber to the app, Apple earns a 30 percent share."

Tech blogger Steve Wildstrom, formerly of Business Week, notes that acquiring new subscribers can be expensive for magazine publishers.

But in other cases, handing over 30 cents of every subscription dollar to Apple amounts to economic suicide. Maybe that explains why Apple isn't letting publishers opt into App Store billing but is demanding that they add it--with a June 30 deadline for them to correct existing apps.

Just how greedy is that 30 percent commission? Consider others that you might pay for an easier, faster transaction.

The check-cashing place a few blocks from my house charges a 2 percent fee.

Walmart charges a flat $3 fee to cash checks of up to $1,000.

PayPal's rates to receive funds max out at 2.9 percent plus 30 cents. The same maximum rate applies at Google Checkout.

Square ships an iPhone app that lets you take credit-card payments in the field; for that high-tech convenience, the San Francisco firm charges at most 3.5 percent plus 15 cents.

Real estate agents usually charge a 6 percent commission, which you can sometimes negotiate for less.

At Kagi, a small software store I've used to buy Mac shareware over the years, developers pay a maximum of 8.74 percent of a transaction plus 75 cents.

If you auction off something on eBay, the site will keep 9 percent of its selling price--up to a $50 cap.

Facebook does take a 30 percent commission on transactions conducted in "Facebook Credits"--but it only requires those in social games, not other applications hosted on the site.

I did, however, find one example of a steeper surcharge: the $4.75 "TicketFast" print-at-home fee Ticketmaster proposed to add to the price of a $10 ticket to a March 5 Wizards game (on top of its $4.40 "convenience fee").

So you can't say Apple is charging the most expensive sales commission in the world.

You can, however, accuse the company of breathtaking arrogance in presenting this extortionate arrangement as a benefit to anybody but Apple.

2/16, 12:41 p.m. As noted by Hayley Tsukayama earlier today, Google launched its own subscription feature this morning. Called One Pass (not to be confused with Continental's frequent-flyer program), it handles not just billing but also authentication across multiple devices. Google says One Pass lets publishers "customize how and when they charge for content while experimenting with different models to see what works best for them." Google will keep 10 percent of the resulting revenue.

By Rob Pegoraro  | February 15, 2011; 3:37 PM ET
Categories:  Apple, E-books, Shopping, The business we have chosen  
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Comments

$10 for a Wizards game?! Dude, you got jacked...

Posted by: ozpunk | February 15, 2011 4:52 PM | Report abuse

“Congress shall make no law ... abridging the freedom of speech, or of the press...”

Evidently Apple is not Congress.

“Our philosophy is simple--when Apple brings a new subscriber to the app, Apple earns a 30 percent share.”
What makes Apple think that THEY are responsible for bring a subscriber to, say, a Washington Post app? This has antitrust written all over it.

If this doesn’t upset the Apple apologists and fanbois, then nothing will.

Posted by: 54Stratocaster | February 15, 2011 5:08 PM | Report abuse

Payments and platforms are entirely different and you can't make comparisons there.

Ask the circulation department how much they give to newsstands ... I bet it's more than 30%.

It's a free market and Apple can (and has a fiduciary obligation to its shareholders) to charge what it thinks the market will bear.

If they priced it too high, the market will speak and the price will go down.

Posted by: rakeshlobster | February 15, 2011 5:21 PM | Report abuse

Just another reason to go some place other than Apple. How about using Kindle for subscriptins? Or even the Sony reader or Nook.

No to Apple.

Posted by: GaryEMasters | February 15, 2011 5:24 PM | Report abuse

BTW, don't forget Groupon! They have you discount 50%, take 50% of that and then also charge you 3% to process credit cards.

Posted by: rakeshlobster | February 15, 2011 5:39 PM | Report abuse

My university has an iOS app which will let me click on a link to pay my tuition bill. Will this new policy mean that Apple gets 30% of my 50K bill each year, and if so, how much fast will the university take this app down?

Posted by: PeterFellenz | February 15, 2011 5:47 PM | Report abuse

@ozpunk: I didn't actually buy the ticket! I'm enough of a glutton for punishment just being a journalist.

@54Stratocaster: Not sure this is an antitrust issue; the iPhone is not a monopoly and it's too soon to call the iPad one.

@rakeshlobster: I'm sure you're not trying to say that because the market will speak eventually, there's no point in my doing so earlier. But that line of argument could be read that way.

- RP

Posted by: Rob Pegoraro | February 15, 2011 5:48 PM | Report abuse

Seems to me that all that talk about commissions at check cashing stores and the like is a smokescreen.
Yes it's a commission, but it's ONLY a cost when an actual sale is made.
And the cost is paid by the seller....NOT the consumer.

To me, a better comparison is a newspaper, which (in a way, like Apple) bases its advertising rates on readership - exposures, not sales. You, Mr. retailer pay a very high rate and if nothing sells...too bad. You pay the same thing again tomorrow to reach almost exactly the same audience.

Apple on the other hand exposes your offer to millions of views and ONLY charges you something when a viewer accepts your offer.

So spare me the arm-twisting metaphors. I can buy 1 year subscriptions to magazines for $1 or $2 everyday on Amazon and many other web sites.

If they can sell their product for those prices there, they can afford a 30% sales commission at the App store.

PS - Take guess at what kind of commission Publishers Clearing House gets on every sale.

Posted by: curmudgeon555 | February 15, 2011 6:00 PM | Report abuse

@RP I believe in free speech and free markets.

Apple is acting as a company should -- in its own best interests. Publishers should act in their own best interests as well.

I don't think Apple's cut is excessive given their market position. If I were in their shoes, I'd try the same and see what happens.

When I was at the Post, I did deals where we got 60% for doing almost no work.

It's all about market power.

Unfortunately for the publishing industry, things have changed remarkably in the last 15 years and they haven't done enough to stay on top.

I remember the industry investing in tablets back when I was still in college.

Unfortunately, nothing meaningful came out of those efforts.

Posted by: rakeshlobster | February 15, 2011 6:08 PM | Report abuse

I've said it for years that apple was an overly controlling, deceptive company, but it fell on deaf ears. Here and there I would hear from someone in the wild, that shared the same sentiment, proving it was a rather common realization. However, it's apple's fans, that once they become fans, are in complete denial. It's their instinct to rush in and defend the company. And due to this blind, and rather large amount of acceptance, we ended up with a string of products that have built in rules that resembled a mini dictatorship. And from this, comes the articles to complain about it. From the birth of the first ipod, to the re-making of the already great mp3 format into a new and unneeded (except by apple), proprietary format to be pulled through a rather restricted itunes, it has continued a path.

But the majority of those buyers, teens, young twenty somethings that didn't get it, were also, ingeniously apple's main targets through advertising that was designed to target that age range. All-in-one desktops with cleverly built in boards so they were difficult to service at inflated costs, design changes to portable players so that each generation would have only one tinsy addition. Disappointingly small incremental changes to mobile devices such as iphone etc, while pretending it was just progress as usual. Meanwhile, other smart phones had hardware features that exceeded these abilities, only to quickly be matched by apple. The omission of the camera on the ipad was no mistake. Give it a year or two and magically it will appear even though they could easily have included it. I'm not saying companies shouldn't try to make a buck by adding features, but the complaining from customers is due to the obvious. An over zealous attempt to squeeze more people into re-buying the same device over and over to the point that deep down people recognize it.

These same traits extend well into the over controlled app market. Where it feels like King Job's merry men must approve each app (for everyone's protection lol). But now that same greed which comes with any monopoly extends finally into the subscription business. And as the article says. There are other companies that of course charge, but when you zoom out and look at the entire picture, you see a long road of similar, overly self serving behavior that rarely if ever considers what affect it has on it's users. Hopefully the most devoted fans will wake up and finally say, enough is enough. But again, it's all targeted to the uninformed masses, so...

Posted by: jzjz | February 15, 2011 6:31 PM | Report abuse

You trolls need to get an education (author included):
http://www.blackberryforums.com/aftermarket-software/67695-handmark-com-ad-ploy-yahoo-com-2.html#post476395

I'm not advocating high commissions, but there are lots of developers that have paid higher prices for arguably less than what Apple provides.

From a developer's standpoint, yeah this still sucks. From a user's standpoint, I prefer the added security (something the author did not mention) and convenience of the App Store versus providing my info through lesser channels.

Yeah, it would be nice if Apple provided the option to do it either way. Unfortunately, Apple is right in that developers would choose what makes them the richest and users would be the ones who would suffer.

Posted by: daiei | February 15, 2011 6:32 PM | Report abuse

Apple's brainwashed and boot-licking fanbois will just have to found another self-deceptive rational to praise the move, many more will just see another extortion and abuse at usurious rates. Time to drop Apple in the wild.

Posted by: Sensi23 | February 15, 2011 6:58 PM | Report abuse

This isn't going to immediately affect the apple consumer, it just means that app developers will get hit hard. Eventually, these extra apple royalties are either going to raise appstore purchase prices or kill off lots of would be appstore apps. Or it might do both.

I don't mean this personally, but I bet The Washington Post and other news businesses aren't exactly jumping for joy right now.

Posted by: ethenjones | February 15, 2011 11:13 PM | Report abuse

@RP

What is the commission that Apple charges to sell software over the "App Store" that their software update just installed on the desktop of my Mac? Has that reached extortion levels also?

Posted by: reston75 | February 15, 2011 11:20 PM | Report abuse


So much hyperventilating.

The requirements kick in only if you use the App Store. So don't use it.

The Washington Post can offer a subscription service on its website. Then it writes its own rules, keeps all the money, and owns the subscriber information.

More generally, nothing is stopping an entrepreneur from creating a competing website to provide apps and subscription services at a lower cost. If Apple is so lame, prove it by beating them at their own game.

The marketplace will issue the verdict Apple's on model. It's an unforgiving judge, and if Apple has it wrong, they'll feel the pain.

In the meantime, columns like this read like envious postings from an industry whose model has already failed.

Posted by: WylieD | February 15, 2011 11:55 PM | Report abuse

Lord, this article is a mess.

•No costs are added. Apple wants a share of the price the publisher already gets in return for hosting and marketing in the App Store.

•The publisher can still sell its content off-site, just not in a way that adds a premium for buying the same content in app.

•The privacy protection simply requires consumers to opt in before giving publishers and resellers personal information such as name, address, email address, phone number, etc. Publishers don't like this because they want to collect this information and resell it to data merchants. Collecting it has nothing to do with helping consumers.

Perhaps most embarrassingly, none of the examples of commissions Pegararo offers have anything to do with gaining access to the most coveted tech real estate available - the iPad.

Methinks the Post should consider hiring a new personal tech reporter. At least common sense needs to be brought to these issues.

Posted by: query0 | February 16, 2011 3:09 AM | Report abuse

I am not sure being ranked with Ticketmaster is the best thing for Apple. Ticketmaster is probably the most reviled company in the world.

@WylieD: Apple's AppStore is the only app store for iOS devices.

@daiei: Yeah this is not so bad for developers because they sell virtual products. It's bad for people that sell non-virtual products like music.

Posted by: tundey | February 16, 2011 7:45 AM | Report abuse

up front disclaimer - i'm an apple guy. got the laptop, got the phone, missing the t-shirt. also have the opinion that they're sh*t is overpriced, but i suppose it's like a birth defect and i just can't help myself.

i'm with the crowd that says apple's 30% is at the far edge of the curve and bordeline criminal (with a little 'c'), but is anyone forcing these companies to do business with them? sure, it brings in huge exposure but it's on the vendor to decide if it's worthwhile.

look at what our friendly ISPs charge us for access - i might be willing to capitalize that 'c'!

Posted by: shabbyreader | February 16, 2011 2:03 PM | Report abuse

oops - i meant "their sh*t" - change my name to shabbyspeller!

Posted by: shabbyreader | February 16, 2011 2:07 PM | Report abuse

I just wanted to thank you for writing the article you wrote. You have some excellent quotes in the article based on this blog post. As they would say in That 70's Show: BURN!

I'm glad this is pissing off other people. And I find it mind boggling that people are defending Apple. They will ultimately get screwed over themselves by this decision as either higher prices or less content yet they embrace it with open arms. They even welcome it. This honestly blows my mind. I can't think of any company in the entire world I like enough to do that. I'm hoping that all these people are share holders. I really am. Because then it's at least logical.

Posted by: Stocklone | February 19, 2011 5:41 PM | Report abuse

Apple is a bunch of thieving scumbags that think they are better than everyone else. I bet this 30% is because Android is whipping their ass on the market. Follow my blog and you'll understand...

http://AppleHaters.blogspot.com

Posted by: ihateapple | February 19, 2011 9:40 PM | Report abuse

I'm confused. I'm constantly getting subscription offers on magazines and newspapers that are more than 30% off. What am I missing here?

Apple offers an opportunity to market to a select group of customers.

They don't require subscribers to subscribe through their store. But if the subscriber wants to go through the Apple Store, because it's just easier and they may not want to go to the bother of entering all their credit card data into the publisher's web site form, Apple gets 30%.

What again is the problem?

Posted by: phrelin | February 20, 2011 2:35 AM | Report abuse

30% is clearly way too much - 10% like Google is closer to reasonable. My great fear is that the apps that currently make my iPad worthwhile - The Washington Post, The New York Times, Netflix, Pandora, SlingPlayer, Kindle, and more, which all have associated subscriptions - will gradually die away as their publishers find they just can't make enough money to generate a fair margin - or, I'll have to go to a competing device in the Android ecosystem to get them, making my iPad worth much less to me.

To "rakeshlobster" who argues that newsstands charge a similar fee - recognize that newsstands don't provide subscriptions, they are serving a different distribution channel with higher costs inherent within it, and they don't insist that their publishers charge the same price through their subscription channel. It's only Apple's monopolistic market power that makes it even possible for them to impose such a ridiculous condition.

Yes, let the iTunes store compete, but don't set such conditions that destroy competitive channels. Perhaps the investigation by the Justice Department and the FTC will indeed find these conditions to be in restraint of trade. But warning - I'm not a lawyer, this is just my personal opinion.

For more, see the blog from the expert at Forrester Research (where I work), James McQuivey, at http://preview.tinyurl.com/4h3x8lf

Bottom line: I love my iPad (and iPhone 4 and Mac Mini, although I also own several Windows machines, too). I just want it to stay as valuable to me as it is now. Otherwise, I may have to buy something else. I was already considering buying an iPad 2 when they come out and bequeathing my older one to my wife - now I have put that idea on hold until I see how this plays out.

Posted by: MichaelGilpin | February 20, 2011 1:16 PM | Report abuse

@ihateapple - As a tech company we are better!
@phrelin - Excellent reply.
@RP - I get the feeling that the Old Guard is upset that they are about to be steamed rolled by a company that's not even in the publishing business.

Posted by: aim2xl | February 20, 2011 1:17 PM | Report abuse

Amazing that (or if) this huffing and puffing comes from an individual who's published a book.

A 30% distributors' cut, especially if that distributor were also the retailer, would be considered a MIRACLE.

Posted by: Godfather_of_Goals | February 21, 2011 8:12 AM | Report abuse

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