Apple is pitching its new subscription service as a savior to journalism, but publishers say its logic is flawed
Business Insider
By Lucia Moses – March 21, 2019
Apple is set to launch a new all-you-can-read news subscription service along with other services at a big event next Monday, and it’s causing major angst among some of the biggest publishers, even those that are sitting it out.
The name of the service hasn’t been made public, but it will be a relaunch of Next Issue Media’s news-aggregation app Texture, which gives users access to about 200 magazines for a flat fee of $9.99 a month. Apple acquired Texture last March from Condé Nast, Hearst, Meredith, Rogers Media, and KKR.
Apple’s pitch to publishers is that it will charge about $10 a month for what will amount to a premium tier of its existing Apple News app that is baked into Apple mobile devices, according to knowledgeable sources. Apple will share half of the revenue with publishers based on how much time users spend with the given publishers’ content, they said.
The new service will include publications from Texture’s past owners, which were bound by contract to do so. That includes titles like Hearst’s Cosmopolitan and Men’s Health; Meredith’s People; and Condé Nast’s Wired and The New Yorker. The New Yorker is allowed to leave after a certain period of time because it has a significant subscription business on its own, according to a knowledgeable source.
With the announcement less than a week away, Apple has been courting the major national newspapers, but to date, The New York Times and The Washington Post have not joined, people close to the situation say. The Wall Street Journal is having productive talks with Apple and sees the service as a way to bring its journalism to a much bigger audience, people familiar with its thinking say.
Business Insider talked to a half-dozen publishing execs who are close to the situation. They say that Apple is pitching itself as a savior to the publishing industry — but that its logic is flawed.
Apple wouldn’t comment for this story.
Apple is comparing news to music
The critics say Apple is pointing to its success with Apple Music as evidence of its subscription expertise. And it’s true that Apple Music has been a bright spot for Apple. It’s hit 50 million paid subscribers, which puts it behind its older rival Spotify’s 96 million, but it reportedly had a slight edge over Spotify in the US by last summer.
“Based on our experiences with Apple Music, we’re very good at running a subscription business,” one publishing exec said, describing how Apple pitched the service. “We know how to build a subscription business, and we’re going to do that for news.”
But the critics say that comparison is flawed. Music, along with entertainment, is inherently different from news. A lot of news articles are interchangeable in a way that music artists or movies aren’t. Plus, most people don’t want 100 magazines; they just want the ones they’re already fans of.
Apple News has 85 million users a month, which sounds like a big pool of potential subscribers for publishers to fish from. But research has shown that just 1% or 2% of a publication’s monthly unique audience will pay for a digital subscription. If you apply that rule of thumb to Apple News, that’s under 2 million subscribers.
“No one wants an all-you-can-eat magazine service,” said one digital publishing exec whose company isn’t participating in Apple’s service. “Magazines are passion points, whereas music, you do want a library.”
Publishers see little financial upside
The other major criticism that top subscription publishers lob at the Apple service is that it won’t be a windfall at all. In all, $5 a subscriber would be shared across all the publishers each month. Compare that to the $10-and-up a month that top publishers are getting from people who subscribe directly. The New York Times charges $15 a month for digital access, while The Wall Street Journal charges $39 and The Washington Post charges $10.
“Taking the 85 million (or even assuming major growth as a result of the new bundle service), if you put those numbers into a subscription funnel, no publisher will see a significant lift in subscribers,” another publisher who’s sitting out the service said.
Among these top publishers, there’s a belief that there’s little in it for them because they see Apple News as something people use when they have a few minutes to kill, so they’re inclined to spend it reading light fare, not the kind of news these publishers charge top dollar for. “People [magazine] should clean up,” the digital exec sniffed.
If they’re wrong, even worse, publishers worry, the app may end up cannibalizing their existing, higher-value subscribers, turning those subscription dollars into pennies.
Publishers have lots of questions
Overall, the app is a sore point for publishers that have felt pushed around by the platform giants that want their content to get users on their platforms but give back little in the way of revenue and user data. This soreness is exacerbated by the fact that Apple has positioned itself as a good guy versus Google and Facebook when it comes to supporting quality news, with human editors to make sure intentionally false or misleading news doesn’t get through.
“There was a perception that Apple was trying to get across that, ‘We feel your pain, and we can be a savior, and we don’t really need the money, so we’re going to kick back most of it to you guys,'” the digital exec said. But the message it sent with its 50-50 split was “tone deaf, big time,” this person said.
Here are other questions and concerns on the publishers’ minds:
- Data. Reader data is a lifeline for subscription publishers, who use it to retain and sign up new subscribers, but the concern is that Apple won’t give them the information they need.
- Visibility. Being part of a bundle will dilute a given brand’s visibility. Publishers will depend on Apple News’ team of editors who decide which articles to promote on the app. Will they give additional promotion to publishers that are in the paid tier, ensuring they get seen so they can make money from the service? Will publishers that opt out of the service be relegated to second-class status with Apple?
- Existing subs. Apple already lets publishers sell subscriptions to their publications through Apple News and keep 70% of the revenue in the first year, then 85% in subsequent years. What happens to that sales channel now that Apple is motivated to get people to subscribe to its own bundle? Will direct subscribers drop those subscriptions in favor of the cheaper bundle?
- The Android factor. The Texture app on Android devices is expected to go away when Apple launches its own service. What will happen to Texture’s app on (Apple rival) Android devices? Will Apple still have a presence on Android — or will its new app make up for what publishers lose from not having a presence on Android? And can Apple catch up to Android globally, which is where it wants to eventually take the service?
- Other services. Will Apple roll the news service into one mega bundle with music and entertainment? Will that improve its chances of selling people into it, to the benefit of publishers?
All these worries aside, even critics of the forthcoming service see some potential benefits. If Apple News users are “older, Middle America women,” as many publishers refer to them broadly, a publication like The Journal has nothing to lose by being part of the bundle because such readers aren’t already likely to be subscribers.
A publisher with a small or emerging online subscription business also has little to lose by being part of a bundle. So it may not make sense for The Times, which can charge $15 a month, but it may for Condé Nast’s Allure magazine, which is offering a year for $8.
Publications have to provide their full print edition to the service, which means they can count digital subscribers toward their print circulation that they sell advertising against. Apple will let them put additional content behind the paywall, giving them other potential ways to monetize their articles.
The question is whether these benefits are outweighed by the risks.
Courtesy of Business Insider – https://www.businessinsider.com/apple-is-pitching-its-new-subscription-news-service-as-a-savior-to-the-news-business-2019-3