Nieman Foundation at Harvard
Back in August, a squabble erupted between the game-maker Epic and the flat-glass-slab-maker Apple. Epic, publisher of the uber-popular Fortnite, didn’t like the fact that Apple takes its customary 30% cut of any money iPhone users spend in its games. It tried to get around that limitation; Apple didn’t like it and kicked them out of the App Store. Lawyers were summoned; chests were puffed.
At the time, I wrote that one beneficiary of this contretemps could be news outlets. Publishers don’t produce games (usually), but they do sell plenty of monthly and annual subscriptions. And many of them do so through Apple’s payment system — often jacking up the price a few bucks to make up for Apple’s vig.
Apple on Wednesday announced a reduction to its longstanding App Store commission rate — one of the most substantial changes to how iOS developers earn money in the history of the iPhone maker’s digital app marketplace — as part of a new program for small businesses.
The new App Store Small Business Program, as it’s called, will allow any developer who earns less than $1 million in annual sales per year from all of their apps to qualify for a reduced App Store cut of 15 percent, half of Apple’s standard 30 percent fee, on all paid app revenue and in-app purchases.
The company says the “vast majority” of iOS app developers should be able to access the program, but Apple declined to say what percentage of its more than 28 million registered app makers would qualify. Apple also declined to specify how much of its App Store revenue would be affected by the reduced commission.
Until now, news publishers selling a subscription via the App Store have paid Apple 30% for the first year and 15% for an individual subscriber’s years after that. But, of course, every subscriber has a first year, but not all of them have a second. For a publisher who qualifies for this program, it should boost take-home revenue for a new subscriber by [launches Calculator app] a little more than 21%.
(N.B.: Complete details for eligibility are set to arrive “in early December,” so there might end up being qualifications that go beyond the $1 million number. That cutoff is for App Store revenue only, not your total revenue, so all but the largest news companies will likely be eligible. You might suddenly see companies like Gannett — which currently has 97 different apps on the App Store — redefine those apps’ “publisher” as the local daily in order to get under that $1 million bar.)
What does all this mean for publishers? Well, they’ve got a few options to consider.
The Arizona Republic, for example, charges $9.99 a month for a subscription via Apple. That has meant it only got $6.99 a month, after Apple’s cut, for new subscribers. Now it’ll get $8.49.1
If the Post thought it would get a lot more App Store subscribers by charging, say, $12.99, it could lower the price and end up ahead on both subscribers and revenue. (A 15% Apple cut of $12.99 would still net $11.04, more than what they were getting before.)
Pro: Subscribing to something on your iPhone is ridiculously simple — no forms to fill out, no credit card to enter, just a couple of taps. Virtually frictionless. Pro: Most of American news outlets’ best customers use iPhones.
Con: Apple takes that cut — meaning you either just lose that revenue for the length of their subscription or you jack up the price to cover it, making it less appealing to readers. Con: You’d rather own the customer relationship yourself — so you have the knowledge of the customer in order to tailor marketing and offers, not Apple.
Five or six years ago, most American newspapers seemed to think the cons outweighed the pros and stayed away from App Store subs. Over the past few years, as digital circulation revenue has become crucial to publishers, more have decided to dive in, if with some reluctance.
This cut will likely convince a few more execs it’s worth the hassle to dance with Cupertino. And for those publications already in the App Store, they’ll probably feel more comfortable directing marketing toward it as a subscription option — rather than treating it as a suboptimal sidedoor they’d rather you not discover.
Whichever choice a publisher makes, this is good news. Let’s hope Google follows suit for Android.
One final thought. News industry executives have spent a lot of time the past few years talking about their need to negotiate, collectively, a “fair deal” with Apple, Google, Facebook, and their tech brethren.
(I confess I have found media companies’ sudden interest in collective bargaining a little amusing, given how so many of them think of their employees’ union organizing.)
That impulse has always struck me as strange if it’s meant as anything more than a PR move. For one, media companies can never agree on anything. For two, the strategic incentives for big dogs like The New York Times or the Post are now wildly different from their friends at the Smalltown Daily Gazette.
And for three, why would these giants want to set a precedent by negotiating an individual deal with a bunch of newspapers on anything?
Facebook doesn’t pay anyone for the right to publish their content in the News Feed. (You pay them!) Google doesn’t pay anyone for the right to show up in search results. (You pay them!) And Apple doesn’t decide to give one subset of one type of app publisher a special deal because they…like democracy? Or want to enrich Alden Global Capital?
No — there are only three circumstances in which the tech giants will change their terms on a core platform for a specific publisher or set of publishers.
This is why Apple was willing to offer (quietly) Amazon a bigger revenue cut to put Amazon Prime Video on the Apple TV. Not having Prime Video was a real problem for Apple TV — the sort of thing that would make a customer decide to go buy a Roku stick instead. If Netflix ever wanted to offer App Store subscriptions again, I’d wager that Apple would be happy to talk numbers.
But that’s the sort of treatment Amazon and Netflix can get. You think the St. Louis Post-Dispatch — or a thousand St. Louis Post-Dispatches, negotiating as one — is going to get a similar deal? Even Microsoft had to pay Apple 30% for Office subscriptions.
Look at this case. Epic — by virtue of publishing the most popular and top-grossing game in the world — had about as much power as an App Store publisher can conceivably have. But Apple still wouldn’t reduce its cut of Fortnite revenues — to the point that it was willing instead to let the situation blow up into a huge public mess. And now that that mess is increasing its regulatory risk, it’s willing to do something much more systemic, like cut the rate to 15% for small app publishers. It would rather cut the rate for hundreds of thousands of publishers in half than set the precedent that one pulling a “give us a side deal or we’ll pull our content” routine gets rewarded.
Congratulations to Epic for prompting this change — even if, as a giant game publisher, it won’t directly benefit from it. The Fortnite fracas raised the broader issue of App Store monopoly in the public’s mind, and Apple responded in order to build some goodwill, get a few headlines about how it supports the little guy, and hopefully stave off regulators a little longer. That’s good for news publishers. But it should also remind them that the power relationship between the tech giants and newspapers is awfully one-sided.
