by Tony D’Altorio, Investment U Research
Thursday, February 24, 2011
As usual, Apple (Nasdaq: AAPL) is busy pushing the envelope. This time, it wants to change how internet commerce is conducted, by way of its iPhone and iPad devices.
The company is dictating tougher terms, such as a 30% cut of subscriber content fees sold through its devices.
Its new international rules require content publishers with digital subscriptions to do the same through its App Store. The businesses won’t even be allowed to link to their websites from the apps unless they do so through an Apple app.
This will force more subscribers through Apple’s digital content store. It also means content owners lose revenue from the surging smartphone and tablet market…
Apple Bites into the New York Times, Hulu, Etc.
Brands from the New York Times (NYSE: NYT) to Elle, Hulu and Spotify stand to lose from the new rules. Meanwhile, Apple gets a greater chance to bite into booming businesses such as Netflix (Nasdaq: NFLX) and Amazon.com (Nasdaq: AMZN).
Digital publishers also worry that Apple will end up controlling billing relationships that would deprive them of valuable information about their customers.
- If they don’t have sufficient data on their clientele, publishers will struggle to implement high-yielding targeted ads focused on those customers.
- If only Apple has that information, it will of course enhance the value of Apple’s iAds which will target those buyers of content.
Needless to say, that possibility makes very few businesses happy. Early reactions from news, magazine, music and video companies suggest that some are examining if Apple is really worth it, revenue-wise.
Recently, Time Warner (NYSE: TWX) unveiled a new digital subscription package for Android, the Google (Nasdaq: GOOG) operating system. At the same time, it hinted that Apple would be shooting itself in the foot if it continues to enact tough revenue sharing.
And Streaming music service Rhapsody bluntly stated that a 30% fee could force it off Apple’s stores. Of course, Rhapsody is also angry at Apple’s decision to launch its own music subscription service.
Another Battle in the Apple-Google War
Digital publishers that ditch Apple will probably court Android devices instead. Since Google knows that very well, it has quickly pounced on its competitor’s potential misstep.
Days after Apple’s announcement, Google launched the One Pass service.
- This service provides a single point of payment for content across websites and mobile applications.
- It also gives publishers a bigger revenue share, with Google taking just 10%. That’s very important, as many digital content providers work with razor-thin profit margins.
- Google raises the pot further by giving publishers the names and email addresses of its customers, plus further details with consent.
That all highlights a growing competition…
Apple sits in one corner with a tightly controlled, “closed” platform that leans heavily on apps and quality. And Google takes the opposite side with an open philosophy that tries to straddle mobile devices and the web.
Stick with Apple or Switch to Google?
Digital publishers have to ask themselves one question as they ponder whether to stick with Apple or switch to Google: Will consumers live without iPhones and iPads?
The answer determines whether Apple’s new subscription policy succeeds or not.
According to eMarketer, Apple’s iPad will control 78% of the worldwide tablet market this year. And the iPhone will take 30% of the U.S. smartphone market.
This makes it very difficult for content owners to just ditch Apple like they may want to.
Noah Elkin, principal analyst at eMarketer, says, “Some publishers feel like it’s too steep a price to pay.” But they have little choice if they want to “compete on digital platforms.”
For digital publishers, Apple’s move may be what iTunes was to the music industry a decade ago. It greatly helped digital music sales, but gave the company massive amounts of power over the market.
If so, that means digital publishers will just have to grin and bear the fees.