Apple’s business model for its new, but not yet open, iBooks Store for books and magazines follows the same model the company uses at the App Store: Publishers and app developers would receive 70% of the revenue from a book sale or a subscription, and Apple retains control over the relationship to the customer, including his information, which takes place entirely through iTunes, and now iBooks.
When Apple first announced the iPad on January 27th, CEO Steve Jobs said his company had deals with five major book publishers. Said publishers have reportedly been pleased with Apple’s deal as it contrasted very favorably with Amazon’s Kindle program, which until shortly before the iPad was unveiled paid publishers only 35% of the revenues from Kindle sales.
Newspapers, however, are wrestling with the notion of forever giving up 30% of their digital subscription fees through Apple’s iBooks Store, according to The Times, and the idea appears to scare them.
“Thirty per cent forever changes the economics,” an unnamed media executive in discussions with Apple told the paper. “You can imagine we feel less good about it. Should (subscriptions) be treated differently than single item sales?”
Which suggests that newspapers may be just as myopic about their failing old media business model as the major labels have been with iTunes. Newspapers have faced falling subscriber bases as more and more readers shift to consuming news through the Internet, where ad revenues do not pay the bills for the industry’s extensive costs.
Amazon’s Kindle was the first major breakthrough in offering books, newspapers, and magazines in a digital format where readers actually paid for what they consumed, but the iBooks Store for the iPad, iPhone, and iPod touch could radically accelerate a shift to paid digital consumption the same way the iTunes Store shifted consumers to paying for digital downloads of music.
Part of Apple’s reasoning for taking a 30% cut from App Store sales is that it maintains the App Store itself, handles distribution, and covers the transaction fees associated with the sale, as well as all download costs, even for free apps. It’s a model that book publishers are so far seeming to embrace, and an issue that newspapers may not have much wiggle room on in the face of the economic reality that has beset the industry.
The issue of customer information, however, is different for newspapers and magazines than it is for music of apps. Demographic information often helps shape, or even dictate the nature of the content of such a publication. Without that information, publishers and editors could be flying blind, or forced to invent a new approach to their business.
On the other hand, Apple is not likely to be willing to give up control over its relationship to its iBooks customer, especially considering the fact that transactions are likely to be conducted through one’s iTunes account, as is the case with the App Store. In addition to the company’s penchant for control, in this case it also has to protect the integrity of the iTunes process.
Accordingly, how this issue gets resolved will warrant a close watch.
In the case of the music labels, their shortsightedness and thirst for unearned profits lead them to blackmail Apple into raising prices even while distribution costs and production costs continued to decline, which has only hurt their profits from digital downloads, according to one executive.
At the same time, they have been resentful of Apple’s power and control over the digital download market, a market that wouldn’t exist were it not for Apple having created it. It’s possible that we’re seeing the same sorts of attitudes and denying of reality in the newspaper industry if The Time’s sources are representative of the industry as whole.
What they are doing now isn’t working, and Apple is in the process of building something that could work, and judging from the company’s track record, will work. With Apple continuing to manage the infrastructure that supports the customer through the life of a subscription and on into the next subscription, a cut for the lifetime of that subscription seems reasonable.
And I should repeat that what the newspapers are doing on their own isn’t working.