Does Steve Jobs have a religious aversion to subscription services? This is as reasonable a theory as any to explain Apple’s behavior regarding subscription services for digital content over the past few years, flying in the face of market developments.
Apple announced on Tuesday that it will begin supporting subscription content services for iOS devices through the App Store. This will include subscriptions to e-periodicals as well as music and video content. For new subscribers, Apple will keep 30% of the revenue and own the subscriber information. Furthermore, app developers will not be allowed to “cheat” by providing web links in their apps so that users can sign up for subscriptions on web pages outside of Apple’s domain.
Publishers who have seen the iPad as their salvation — as a way to get consumers to pay for content again — have been agitating for an Apple subscription model for some time. Now they have it, and they are not happy with the arrangements. Rumblings about antitrust litigation are beginning to be heard, and music subscription service providers like Rhapsody are asserting that this model makes their services financially untenable on Apple platforms. Meanwhile, a music subscription service connected with iTunes is nowhere in sight.
All this is happening despite evidence of the steadily increasing popularity of subscription services for music. A Mashable survey from a year ago says that a full 50% of respondents either prefer subscriptions services to file ownership or want both types of services (28% say they prefer subscriptions over ownership). This is a major increase from just a few years ago: an Ipsos-Insight 2005 study found that those who preferred paid downloads outnumbered subscription fans by almost four to one.
A more recent NPD survey of Apple device owners suggests that up to 8 million US users would pay $10/month for a subscription version of iTunes; that’s more than ten times Rhapsody’s current subscribership. Rhapsody has offered a major-label-licensed subscription service since 2002, predating the iTunes Store.
For periodical publishers, subscriptions are the core business model. Until now, Apple has only supported a “newsstand” style model, in which users have to pay separately for each week’s or month’s issue. Apple inaugurated its subscription model for publishers with the launch of News Corp’s The Daily for the iPad two weeks ago.
Meanwhile, Google is jumping in with further support for paid content models, with particular focus on the periodical market. In an announcement timed to coincide with Apple’s, Google announced a model with more business model flexibility and a more favorable 10% revenue cut.
Google CEO Eric Schmidt claims that Google does not intend to profit from this model, that it is only charging enough to cover its costs. In other words, Google sees an opportunity to distinguish Android from Apple platforms through availability of premium content — to hit Apple where it lives, so to speak. But Google’s model will extract collateral damage in the market as it competes with vendors that have been offering flexible paid-content service tools for periodical publishers, including Journalism Online and Atypon.
Support for flexible paid content models is going to be essential for publishers who are realizing that the online ad market for their publications has declined and may not ever recover. With Google in the game and Apple at least reluctantly dipping its toe in the water, Silicon Valley is beginning to see the significance of this shift in the market as well.