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

6/13/11Follow @hoffmang

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who owns the customer relationship. Independent of whether the publishers believe that a 30 percent fee is appropriate or whether forced price parity violates the notion of true competition, the question is whether Apple’s terms are detrimental to media companies seeking to own that business relationship. According to reports confirmed by Apple executives, about 50 percent of App Store subscribers choose to share their information with publishers. The collective wisdom is that publishers should be excited about this number, since it’s far greater than any other Internet-based opt-in rate. My take is that a number of larger publishers believe that they normally would obtain a much higher rate if they had a direct relationships with these subscribers.

The reaction among media companies to the Apple’s subscription requirements has been predictably varied. Companies like Next Issue Media, the joint venture formed by Hearst, Conde Nast, Time, Meredith, and News Corporation, have explicitly decided to start with the Android platform to sidestep a confrontation with Apple. But other companies like Bonnier, the publisher of Popular Science, and even some of Next Issue Media’s parents have gone full bore with subscriptions on the Apple platform. Finally, the Financial Times, which has an extremely successful digital model, has been very explicit about their desire to own the customer relationship, and remains “in negotiations” with Apple to sort out this critical issue.

While the focus of the App Store subscription plan has been very specific to media and content companies, the same issues and challenges around subscription and content control exist within other areas in our new cloud-centric world—especially when it comes to cloud services delivered via and to mobile devices. We’ve already seen Steve Jobs apparently claim that the most onerous parts of his attempted remediation wouldn’t affect SaaS companies. In this case it remains particularly hard for Apple to remain a middleman. The value of the iPad is heavily based on the content and services that I can access. If content companies choose not to support the iPad because of the underlying subscription terms, then as a consumer I have to wonder about the value of the device itself. One of the major value propositions of the iPad for me, for example, is not having to also own an e-book reader. If I have to move to Android to continue to enjoy my excellent relationship with Amazon (Prime is brilliant!) then all of a sudden the Galaxy Tab 10.1 begins to look very compelling indeed.

My prediction is that these economies will move closer to the world we’ve seen in pay for performance advertising. Media companies will happily write a check to Apple for even 30 percent of the first year net value of the subscriber that Apple sends the companies’ way, but those subscribers will have their primary relationship with the service.

This story has many chapters left, but the central theme around customer ownership will continue to influence and drive the relationship between the media and content markets and the platform companies. In the second half of 2011, more light will be shed on how these relationships evolve to the mutual benefit of consumers, media companies and the platform players.

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