The Known and Unknown of Apple’s New App Store Subscriptions

By  |  Tuesday, February 15, 2011 at 11:22 am

This is one of the more significant moments in the history of the iPhone and iPad: Apple has announced its system for selling subscription-based content through its App Store. As with apps and one-time purchases such as game content, it’ll take a 30% cut of the sale.

The company’s announcement says that content owners will be free to sell their wares outside the App Store as well–no 30% fee to Apple involved–as long as they provide the same (or better) offers within the App Store. That’s a relief. But it also says this:

In addition, publishers may no longer provide links in their apps (to a web site, for example) which allow the customer to purchase content or subscriptions outside of the app.

That means that the current content-acquisition system used by Amazon’s Kindle and numerous other apps–which all happens in the Mobile Safari browser, not the app–is now verboten. From a consumer standpoint, the case for the new subscription system is that it’ll make buying stuff simpler: The browser-based approach has always been more than a tad clunky. Publishers, however, are entitled not to be thrilled by the new directive to do things Apple’s way and cut the company in on the profits of at least some sales–All Things Digital’s Peter Kafka says that Time Inc., for instance, isn’t going to play ball.

And given that e-books sold with agency pricing already turn over 70 percent of the profit to the publisher, it’s not clear what Amazon.com, Barnes & Noble, and other distributors of e-books are going to do: If they turn over 70 percent to the publisher and 30 percent to Apple, that leaves them with zip. (Or less than zip, actually, given that it costs money to build apps and acquire e-book rights.)

As a selfish owner of an iPhone and an iPad, I’m mostly curious about what happens to existing iOS apps and content people have already paid for–some of us have already invested a lot of dough in Kindle books under the assumption we’d be able to read them on iPhones and iPads. Apple’s statement doesn’t say when the new requirements take effect, but All Things Digital’s John Paczkowski reports that app publishers must come up with new versions that follow the revised stipulations by June 30th. (For now, the App Store is still full of programs which violate the new rules. In fact, Amazon released a new version of Kindle yesterday which still uses in-browser buying.)

How about Netflix, which lets you watch all the video you want for one flat fee? If the company wants to continue offering iOS apps, it will have to start allowing folks to pay for Netflix subscriptions through Apple’s subscription system and turn a percentage of their monthly membership fees over to Apple. I guess.

What happens if Amazon or other companies call Apple’s bluff? Is there any chance the 30 percent fee might be reduced? I don’t know. Can I keep using the Kindle apps I’ve already downloaded even if Amazon pulls out of the App Store or releases an app that doesn’t give me full access to my library? I don’t know. Will Apple’s own iBooks start to look like a more compelling Kindle alternative than it has to date? I don’t know. Will publishers downplay Apple support in favor of Android’s less restrictive platform? I don’t know. But with the June 30th deadline on the horizon, it sounds like a lot of this stuff will have to become clearer in the next four and a half months.

 
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10 Comments For This Post

  1. Keith Shaw Says:

    This could potentially be a bad PR move for Apple – the reason that so many of us are downloading Kindle books and reading them on an iPhone and iPad is because their iBooks store is so limiting. Apple should focus on trying to improve the selection of books (working with the publishers) rather than trying to strong-arm competitors into giving them a slice of the pie. I'm also disturbed by the potential that streaming services like Netflix could take a hit too. It seems odd that Apple would take this course at the exact moment when so many more competing devices would be coming out. It would certainly make my jump to an Android phone (and tablet) a lot easier if I wasn't able to access my content anywhere.

  2. jdq Says:

    So Amazon could just remove the buy link to amazon.com (in the kindle app) and be fine. No one but Amazon knows what percentage of ebook buyers where sent to amazon.com from the kindle app, but if it's a small percentage, this seems like the easiest solution.

    On my kindle, even though I have the 3G version, I still do my purchasing from my browser on my laptop/desktop because it's so much more pleasurable than searching/buying from the kindle. Perhaps people are using the iPad app in much the same way.

  3. Juz Says:

    Aren't we missing some of the detail here Harry? As I read it, Apple only takes a cut if they bring the subscriber to the app, such as via App Store purchase.

    But if the publisher sells the subscription, then the money is all for the publisher. I thought they mentioned that purchasers will have ways to add their own subscribers also? So you can taek subscription via other means, then get them into the app without apple's take (and without apple knowing the details of that subscriber)

    Not sure where in-app purchases fall in that scale… but seems Apple are betting on their App "distribution system" being a decent portion of the subscriptions.

  4. Harry McCracken Says:

    Sorry if it wasn’t clear: I’ve amended the story to state explicitly that stuff sold outside the App Store doesn’t involve a fee to Apple.

  5. Fred Says:

    I couldn't possibly care less about magazines, etc. on iOS. But there are applications I use on a regular basis that are affected greatly – Kindle, Netflix, MOG, Audible. Netflix, Audible and MOG would, I assume, have to turn over 30% of their subscription revenue to Apple for eternity for any customer purchasing a subscription in-app, and could not use a link in the app to encourage new subscribers to use the website instead. I assume Apple would also block using the App Store description to promote external subscriptions, as well as mandatory trial periods that would allow the publisher to push external subscriptions via email before payment started. Amazon, as noted, would lose money on every Kindle title sold in-app, and would be unable to tell customers they should buy on the website instead. Given all this, would these publishers continue to engage in the iOS ecosystem? Margins for most companies are pretty razor-thin. The one company with sizable margins is the one demanding the 30% tithe.

  6. Xavier Blondel Says:

    I may have missed a point here, but I wonder why people are so focused on Amazon's Kindle App.

    From what I understand of the Apple press release, only subscription-based content is targeted by this new Apple tax. Amazon ebooks are not subscription-based: You pay for a given ebook only once.

    I know that, on the other hand, Amazon is proposing magazine subscriptions, but I wonder if it really makes for the bulk of their sales in the Kindle ecosystem.

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