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April 17, 2014

Apple & the News Industry: Accommodate, Negotiate or Litigate?

Last week’s news that Apple was laying down unexpected iPad rules for the news industry sent a thunderbolt through executive suites. I’ve confirmed the story, first reported by John Boudreau in the Mercury News (Newsonomics, “9 Questions on Apple’s iTunes for News“). Indeed, a key meeting between news industry and Apple execs produced the following headlines now circulating through the industry and resulting in new within-the-industry talks as early as this week:

  • News publishers would be allowed to sell subscriptions to digital news products — but only using Apple’s own commerce system. Apple talked about taking a 30% cut of reader revenue, the same percentage it has taken for apps in general — and taking that cut of ongoing subscription revenue. Given that what will be a trickle of income in early 2011 could turn into a river within a couple of years (see Thursday’s Nieman Lab post, “The Newsonomics of Apple’s “Digital Circulation” Share”), Apple’s message took publishers aback. After all, the Wall Street Journal and the Financial Times, have offered customers “free” apps through the iTunes app store, then used their own authentication and commerce systems to complete the paid subscription transactions, with Apple getting no cut of the action. The New York Times had planned a similar system of selling iPad and what I’ve called “all-access” subscriptions, similar to the FT’s model. Would the WSJ, FT or NYT be “grandfathered” in? Unclear.
  • News publishers’ plans to obtain data about customers — and their usage patterns on the iPad — were dealt a blow. Apple talked about an opt-in, opt-out plan, with consumers given the choice of sharing data with selected publishers, with Apple as a key intermediary and beneficiary of the data. One publisher called that customer relationship and pipeline of data “the mother’s milk” of the emerging marketplace, one that went apparently threatened to go dry after the the industry/Apple meeting.
  • Advertising sales are on the table. While Apple would certainly like publishers to use its iAds system, it’s unclear if such usage would be required and under what circumstances.

So that leaves the newspaper industry in a quandary. (And, brings up all kinds of question about the consumer magazine transition to the tablet, as Next Issue Media tackles the same questions.)

Simply, the tablet has provided the biggest hope for redrawing the digital business model of news publishers. It offers a do-over, the chance to redraw the pay/free lines of the open web, to rebuild the two-legged print business model (advertising + circulation) in the digital world. It promises access first to some 10 million or so iPad users, and then maybe a number twice or three times that in the coming couple of years as tablets become more cheaply available and ubiquitous among “power news users.” That hope has fueled a budding optimism for 2011 and beyond, as publishers sketch the outlines of a more digital future, one that not only produces two streams of digital revenue, but also offers much-reduced costs as fewer papers are printed and delivered.

That lure is still there. It’s now strongly tempered, though as the two issues of data and money loom large. If publishers can’t easily match up their “Apple” customers with their print and browser-based ones, their customer relationships are put at peril. The ability to price well and to serve customer needs across devices is at least strained and maybe made very difficult.  Then, there’s that 30% of what may be a very large revenue stream going forward.

So, this week, as the industry discussions re-start in earnest, there will be three approaches getting airtime, offering echoes of past discussions about “how to deal with Google”:

  • Accommodate: Some will say, let’s move on. Let’s not miss this tablet revolution. Let’s accept the 30% Apple cut; it’s the new cost — at least a known and budgetable cost — of the new digital circulation. We never got a cut from Google, but here we’d actually be selling something and getting 70%.
  • Negotiate: Some will look at Apple’s “this is our business model” approach as a trial balloon, open to negotiation. Here, what would make sense is bringing some nuance to the “partnership,” differentiating first-time buy commissions and continuing subscription revenue shares and/or distinguishing “new” subscribers from existing print subscribers going digital. Data sharing could be subjected to emerging industry standards, with the information both enabling Apple’s fledgling iAds business and publishers’ own ad targeting and reader service. Negotiation is helped greatly by competition. Ironically, Google, the first big web middleman to drive the newspaper industry nuts, may prove useful here as its Android-powered tablets (Samsung, Dell, Toshiba and more) take on the iPad. Can Google strike a 10% deal with the newspapers, setting a different kind of pricing “standard,” in one fell swoop greatly improving its news industry relationships and taking money out of Apple’s pockets?
  • Litigate: I wouldn’t expect to see any kind of court action — Apple’s dominance in such a new market as “tablet computing” is tough to prove — but I would expect to see “anti-competitive inquiries” launched. Just last Friday, a House Judiciary subcommittee held a hearing on “Competition in the Evolving Digital Marketplace.” Much of the testimony from six witnesses was generalized, but I find this passage from Edward J. Black,
    CEO of the DC-based Computer and Communications Industry Association of interest:

“…In principle I support and promote open and interoperable systems. However, I also recognize that not all platforms are going to be open. Although this can sometimes be an antitrust concern, it truly depends on market
concentration and specific circumstances. One aspect of the Apple situation that gives me pause is
that Apple changed policies after it had surged to a commanding lead in the apps market, locking
down a platform that had previously been open. Carl Shapiro, the current Chief Economist at the
DOJ, discussed this phenomenon when he was still a professor at Berkeley. Although he
recognized the challenges with upfront “duties to deal” he did endorse being able to limit a
dominant firm’s ability “to change policies by shutting down interfaces that had been open.”  This
behavior, also known as installed-base opportunism, is something that regulators must guard
against.    Competition policy should discourage baiting consumers with an open platform, and
then closing down and restricting that platform to competition after consumers have already parted
with their money”.

Might Apple have goofed in first allowing the Wall Street Journal and the FT to use the App Store for lead generation, then moving to change the rules?

Lots of legal minds could concentrate on that and related topics, but expect to hear some raising of concerns with the Federal Train Commission and the Department of Justice, both concerned about the winnowing of consumer choice in news.

At the least, Apple’s action may well be scrutinized….which could lead back to “negotiation.” Who negotiates (AP, NAA, Journalism Online, Next Issue Media and/or News Corp’s as-yet-announced-but-moving forward consortium) and how are among the foremost questions of the day.

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