Apple surprised everyone again today and officially announced their subscription service was ready for prime-time within the App Store payment framework. We all knew this was coming since before the introduction of “The Daily”, the new iPad-only daily magazine released two weeks ago, we just didn’t know when (most speculation had it coming in the iOS 4.3 release). As usual, though, the statements by Steve Jobs reinforce the concerns we’ve discussed recently about in-app vs. external purchases, and now extend from the eBook market into anything that’s subscription based – Netflix, Hulu, Audible, I’m looking at you.
Let’s start with the announcement and statement by Steve Jobs. Here’s the statement he made this morning:
“Our philosophy is simple—when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing. All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one-click right in the app.”
Then the announcement went on to say that they are not restricting publishers from offering subscriptions online from their own sites, only that they require that if they do so, they must also offer the ability for the consumer to purchase that same subscription from within the app itself, processing the transaction through the App Store payment framework. And, this is important, those subscriptions must be the same price as the publisher’s other offerings. So much for increasing the cost of the in-app purchases to make the external purchases more attractive.
Apple has also set the date for existing apps to comply with this policy as June 30, or three months after the date they gave this weekend to eBook apps like Amazon’s Kindle and Barnes & Noble’s nook apps. There are many publishers this will impact, but there are three that I use personally that will certainly be impacted – Netflix, Hulu, and Audible. But, since I already have subscriptions to those services, they won’t be impacted – keep in mind this is for new subscriptions going forward.
So let’s take Netflix, for example. When I got my iPad back at launch last year, Netflix was one of the big draws. I liked Netflix, and instant streaming to my TV (through a media-center PC runnning Boxee) worked pretty well. Having the mobility of the iPad was a big draw. I already had an account with Netflix, but say my co-worker didn’t have a Netflix account and was sold on it by watching me catching up on Dexter while at lunch. He loads the Netflix app, and gets the login screen. He doesn’t have an account, so he clicks to “Sign Up”. Currently, that loads Safari where he can sign up, select his plan (say the $7.99/mo instant stream only plan) and go on his merry way. Netflix gets all $7.99/mo as revenue from that point on. Now, what would happen with the new process?
He’d click that same “Sign Up” button, but now that would complete the new account setup from within the app. He’d still have the same options, and it wouldn’t cost him anything different, still $7.99/mo for the instant stream. However, since the transaction was processed through the App Store, Apple would now get 30% of that recurring charge, or $2.39/mo, while Netflix now would get $5.60/mo. So, to go back to the sandbox analogy I talked about in comments yesterday, this is the cost of doing business through Apple. And, while I agree that in theory these content providers have been getting a free-ride on Apple’s platform, 30% is an unreasonable levy. It’s hard to imagine that these companies could still afford to do business on the iOS platform if this is the case.
Content providers always have to pay some cost of entry to a platform. In most cases, we as consumers have no idea what that cost is, but be assured it’s there. Netflix, for example, comes embedded in a lot of devices these days – TV’s, Boxee Box (finally), PS3/XBox 360/Wii, Roku, I mean what devices don’t have Netflix yet? Oh, sorry Android, forgot you were standing in the corner over there (although it is coming soon). But, I guarantee you that Netflix had to pay some sort of fee to get on those platforms. We don’t know what it was, as dealings like that are rarely made public, but Sony didn’t build Netflix into their TV’s for free. The difference in this case is that we’re being included in the discussion and privy to the details.
What this course of action will result in, most likely, is higher overall prices for consumers. With Apple’s huge install base of iOS devices (think about it, over 15 million iPads and 4 years worth of iPhones and iPod touches that can run these apps as well), these content providers are not just going to walk away from the platform. They have to plan for the contingency of people purchasing their subscriptions within the app.
No one really knows how many subscribers that will be, though, as I don’t think there is concrete data on how many people subscribe first, then the get the app (like I did) or have the app, then subscribe. But it is known that they have to charge the same in both cases. So, either everyone gets the current price no matter the method of subscribing, and the provider takes the as-yet-unknown hit to their bottom line, or they raise their prices to cover the potential revenue loss – definitely not 30%, but maybe a 10% hike? Again, no one really knows what the total impact will be.
What do you think? Please leave your comments below, and we’ll continue to follow this soap-opera as it develops.
(Via ARS Technica)