Who Owns the Relationship with Digital Subscribers—Publishers, or Apple?

6/13/11Follow @hoffmang

The ascent of smartphones and tablets is causing a seismic shift in the way media companies reach consumers. As an iPad and iPhone owner, I now consume the bulk of my media online. Whether it’s the Kindle App, Netflix, HBO Go, or Hulu, media companies have rapidly realized that they can use the new platforms to increase engagement with their existing audiences while also reaching new consumers who have grown up with Internet-based media as the norm rather than the exception.

Yet the advent of these new platforms and the services around them also raise the challenge of disintermediation. To be specific, look at the subscription initiatives recently launched by Apple, and to a lesser extent Google, governing how media companies can sell their digital wares via mobile app stores. In the iTunes App Store, media companies can now sell subscriptions, with Apple taking a 30 percent fee. Additionally, the original set of rules stipulated that a media company using the App Store could not sell that same digital subscription at a different price on their own or on any other store—though very recent reports suggest that Apple is backing down from that provision.

As the founder and CEO of both eMusic and Vindicia, which provides subscription billing services, I’ve learned a lot about subscription business models and how best to compete against free (especially when free is illegal). For me, this experience reaffirmed the central role that relationship management plays in the relative success of media companies.

As a backdrop for this discussion, it’s useful to understand a couple of basic media business concepts. First, media companies succeed not just because of great content, but because of the compelling experience they provide consumers. Netflix, for example, has set out to make the task of being entertained with video content dramatically easier. The Netflix Prize, designed to encourage the creation of better recommendation algorithms, was just the beginning of Netflix’s effort to solve the “I have access to everything—now what?” problem. In the newspaper and magazine world, publishers are realizing that they must make the experience of consuming their content more enjoyable if they want to compete with services like Twitter, Facebook, Flipboard, Instapaper, and Google Reader that intermix their stories with those from other sources. The positive experience is what creates long-term customer stickiness.

Second, owning the customer relationship is critical to a media company’s long-term success. Engaging directly with customers can shape and improve the overall experience (see the point above), but it also provides media companies with the means to cross-sell and up-sell as appropriate.

So, while there is plenty to like about Apple and Google’s subscription initiatives, not least the rapid and broad market penetration of iOS (and Android) devices with compelling and convenient single-click payment options, it’s not hard to understand why media companies would have questions about the role Apple and Google are assuming as self-appointed middlemen.

Media and content companies realize that successful consumption of their content and services via these devices is partially driven by the platform itself—whether a byproduct of the curation capabilities of the storefront/device or the pricing policies of the platform. Media companies need to explicitly take these factors into account as they build their acquisition strategy on these different devices.

And whenever a third party enters the scene, it raises the question of … Next Page »

Gene Hoffman, Jr., is chairman and CEO of Vindicia, which provides strategic online billing solutions to merchants selling digital content, including online game publishers such as Activision Blizzard and Atari/Cryptic. Follow @hoffmang

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  • http://monirom.com Monirom

    The points you make while valid but, to a certain extent moot.

    Publishers reluctant to give in to the App Store policies have already found a way to circumvent the issues, both technical and otherwise. Using HTML5 and a host of other burgeoning frameworks are allowing them to continue to publish, exist on the desired platforms and play by their own pay-wall/fee rules without cutting Apple in on any of the revenue.

    One needs only to look at the Financial Times web app (note I said web app, not mobilized website) to see the future in action. Check it out at FT.com