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Apple Wants Subscriptions, but Publishers Had Best Be Wary

A San Jose Mercury News story about a rumored iOS subscription plan for publishers, which would allow them to sell newspaper and magazine subscriptions to consumers through Apple (AAPL) on a continuing basis, and not just as one-off copies, will generate major excitement.

It is good news, particularly if, as the report suggests, audience will be able to opt in to share their personal information with the publishers and not just Apple. However, publishers have made a major mistake. In their desire to find a way out of falling subscription rates and dropping add numbers, they have latched onto Steve Jobs and the iPad the way a drowning man grasps anything that looks like it might float. The publishers can't possibly pull Apple under, but they could make themselves dependent and mortally wound their businesses until they become nothing more than a satellite function to the iOS hegemony.

Publishers expect that tablet formats will become more important over time. Condé Nast UK managing director Nicholas Coleridge predicts that upwards of 40 percent of sales revenue will come from "such products as the iPad." Already 18 percent of the 50,000 circulation that reads the UK version of Wired own iPads.

From a publisher's view, the current practice of selling single issues is unsatisfactory. As is true for most subscription services, publishers want to lock people into a service and then hope that inertia keeps them in place. Someone who buys single issues might only get a few a year.

Publication sales revenue is then higher, but ad sales, the real monetary driving engine for the industry, depend on publishers being able to show subscription characteristics that are attractive to advertisers. Often it works out advantageously to give people subscriptions at big discounts to the individual-issue price, because the aggregate number of committed readers allows far higher ad prices.

After so many years of inaction, publishers are disturbingly ready to throw themselves heart and soul -- or at least wallet -- into the iPad and iPhone. There are a number of problems with this.

Publishers are currently paying the price for an addiction to things-as-they-are. They wanted the certainty of profits under the old systems and, more importantly, the assurance that they could proceed as they had in the past. The iPad has quickly become their choice for unchanging reality. Go all in on the new frontier and then coast.

But it's unrealistic to think that this is the final word. What will other tablets look like and how will they work? Perhaps they'll need a significant different approach to make content palatable. What other devices might come along? Will people read content on whatever televisions sets become after Apple, Google (GOOG), and others are done?

Even if tablets win out, by kowtowing to Apple, publishers are cementing practices into place that will come back to bite them:

  • Apple will likely take 30 percent of subscription sales and 40 percent of ad sales. Granted that publishers already highly discount both, but the Apple tax becomes an overhead that changes all financial models.
  • Customers can make their information available to the publisher, but they don't have to. And if they're always purchasing the subscription through Apple, why should they? Chances are that the publishers won't get the information they need to sell other products efficiently and drive up margins.
  • Subscription services at least give a publisher a chance to create a direct relationship with the customer. But Apple will always remain a barrier between the two.
  • In print, publishers have an astounding range of decisions of format and even features. Consider the recent motion cover on Wired. However, Apple sets virtually all aspects of presentation, including ads.
  • It's unlikely that the entire reading world will buy iPads -- or even tablets. What is the strategy for those customers going forward?
Once Apple has locked publishers into this form, what makes them think that Google won't do the same for Android tablets? Or that individual carriers like Verizon (VZ) won't put in their own constraints? Publishers are showing how completely they are ready to capitulate, and every other potential outlet for electronic subscriptions is taking note.


Image: Courtesy, New York Times