This week, Apple announced a new suite of services including Apple News+ and Apple TV+, subscription services for news and video content respectively. It’s an interesting move for Apple, which excels at creating premium experiences, enjoys strong customer loyalty, and has the ability to potentially deliver audience scale. There are, however, serious questions about the revenue split, consumer relationship, app-market dominance, access to content, and Apple’s long-term commitment to publishers.
While few details are available at this point (particularly about Apple TV+), it appears Apple News+ will cost $9.99 per month with Apple taking a hefty 50% cut and distributing the remainder to all of the participating publishers. Tim Cook did not announce a price point for Apple TV+ but it seems likely to have similar characteristics as Apple News+, including a similar revenue split and distribution structure.
A Lopsided Relationship
With these news services, Apple will control not only the relationship with the consumer, but will also control the data about the consumer. It’s hard enough to build a subscription business without having another company serve as the middleman between the content creator and their audience. Moreover, as New York Times’ CEO Mark Thompson put it, “Bundles always dilute the brand.”
More troubling is the fact that Apple runs the app marketplace itself via the App Store while simultaneously offering a media consumption app that competes with publishers’ branded apps as well as those of other aggregators such as Flipboard. An example of the inherent conflict of interest is that Apple places its own apps front and center, pre-installed on more than a billion phones worldwide. Beyond a glaring competitive advantage, controlling the marketplace and delivery mechanism of its competitors’ apps gives Apple unprecedented insights into the transactions of those companies (think Amazon selling its own brands while seeing everyone of its competitors’ transactions).
Apple forcing the reported levels of revenue splits and data terms underscores larger concerns about the dominance of platforms. As Senator Blumenthal, who serves on the Senate Judiciary Committee has stated, “[t]here is much stronger agreement among me and my colleagues that there needs to be more aggressive enforcement action on tech companies.” Senator and presidential candidate Elizabeth Warren (D-MA) recently called for the break-up of Apple and the other platforms. Senator Ted Cruz (R-TX) has long voiced concerns about potential bias of big tech firms. Members of Congress are concerned that big tech platforms have too much influence and are harmful to society. Although Apple has avoided a lot of the privacy gaffes of other tech giants, the fact that Apple can boldly propose such lopsided terms shows how the landscape is perilously tilted in favor of the big platform companies.
Bringing further voice to the concerns raised by policymakers, Spotify filed suit against Apple claiming that Apple “purposely limited choice and stifled innovation.” Spotify claims that Apple uses its platform to disadvantage competitors in the music streaming business, including by taking a 30% cut of subscription revenue. While Apple is not proposing to get into the news business, the Apple TV+ product sounds like Apple will be both distributor and competitor.
And, considering the fact that Apple has expressed concerns in how digital advertising works, it seems an ironic choice for the company to favor advertising-based business models over subscriptions for publishers.
Quick Fix or Long-term Success?
Publishers are also rightly concerned about whether Apple will maintain a long-term commitment to this initiative. Facebook famously changes their terms, goals and algorithms about every six months, which makes it extremely difficult for publishers to build a sustainable business. Other social platforms have rolled out paid incentives to content producers only to withdraw them as soon as the programs are off the ground. Publishers have rightly grown wary of purported platform support.
At the end of the day, Apple needs to make a serious commitment to making distribution work for high-quality news and entertainment. As we have seen in Google and Facebook’s own (hardly altruistic) need to invest in the production of content that their business models undermined, building a model that sustains quality content creation is the bedrock of long-term success.