Apple's Newsstand, subscription terms paint confusing picture for news apps

By: Jeff Sonderman

June 9, 2011

Apple is sending publishers conflicting signals about the future of content subscriptions on iPhone and iPad apps.

As reported Thursday, the company has changed its app requirements to give publishers more pricing flexibility, which is a good thing. But those guidelines, as well as the upcoming Newsstand for newspapers and magazines, also seem to hinder publishers that want to sell subscriptions outside of Apple’s purchase system.

First the good news: Apple’s App Store Review Guidelines no longer restrict subscription pricing. Previously, apps that used subscriptions sold outside Apple had to offer a subscription option within the app at the same or lower price. Although the simplicity of in-app purchasing may have made that an appealing option for consumers, Apple’s 30 percent cut of such transactions made it less appealing for publishers.

Not so good for publishers, however, is that Apple appears to be making it more difficult to sell subscriptions outside of its in-app purchasing system. The App Store approval guidelines require that apps that offer subscriptions use the in-app purchase, and they ban the use of buttons or external links to purchase content.

The guidelines are accessible only to registered Apple developers, so I’ll quote the relevant passages here:

“11.12 Apps offering subscriptions must do so using IAP [in-app purchase], Apple will share the same 70/30 revenue split with developers for these purchases, as set forth in the Developer Program License Agreement.

“11.13 Apps that link to external mechanisms for purchases or subscriptions to be used in the app, such as a ‘buy’ button that goes to a web site to purchase a digital book, will be rejected

“11.14 Apps can read or play approved content (specifically magazines, newspapers, books, audio, music, and video) that is subscribed to or purchased outside of the app, as long as there is no button or external link in the app to purchase the approved content. Apple will not receive any portion of the revenues for approved content that is subscribed to or purchased outside of the app.”

Will Newsstand steer subscriptions through Apple?

Furthermore, Apple is pushing for newspaper and magazine content to flow through a new feature called Newsstand — which publishers have sought for some time. As previewed on Monday, Newsstand will have a special store to purchase and download newspaper or magazine issues and organize them on a virtual bookshelf. It probably will look and function a lot like Apple’s iBookstore, which sells e-books and stores them in the iBooks app.

As I looked through Apple’s website for information on Newsstand, which will launch this fall in iOS version 5, I was struck by this statement: “Apps built for Newsstand use In-App Purchase subscriptions.” That suggests that the favored way, if not the only way, to sell a publication in Newsstand is to let Apple handle the transaction. The guidelines disallowing external purchase options seem to support this.

Some publishers have resisted using Apple’s transaction system because Apple takes 30 percent of the revenue and keeps ownership of the subscriber’s personal information. Some news organizations, such as The Wall Street Journal and The New York Times, have opted to enroll iPad subscribers through their own Web-based systems instead. (Apple allows that now, as long as publishers enable users to subscribe within the app as well.)

: Apple’s Newsstand system will display a virtual bookshelf of a user’s subscribed publications and has a separate section in the iTunes store for purchasing subscriptions.

I emailed and called Apple spokespeople to see if the statement on the company’s site means that publishers must let Apple handle sales. They did not respond. Apple’s developer documentation does not address the point.

I can see why Apple would require payment through its system. The company has been trying to get a grip on all subscription apps since early this year, when it first added subscription payment technology to its mobile operating system. And a single “tap to purchase” system would bolster Newsstand’s ease of use.

Is Newsstand the storefront publishers have been seeking?

Newsstand may solve some problems for users and publishers. The experience of finding news apps in the iTunes Store is fragmented and disorganized. Enhancements that enable users to find publications, subscribe quickly, and download the latest issue automatically are much needed.

Publishers that choose to build apps for Newsstand probably will benefit from increased exposure to users in the iTunes Store. Sales volume may increase if the purchasing process is simpler and standardized. The question is: Is that worth losing revenue and ceding control of the relationship with subscribers?

Any news organization that intends to build a new audience and revenue stream with tablets should be concerned about Apple’s leverage. If the Apple Newsstand reaches a critical mass, with most major publishers selling their periodicals through it and millions of customers accustomed to finding their apps there, it will be very difficult for any one publisher to break away — say, to pursue an alternative such as an HTML5 Web app. And who’s to say that once Apple controls this market, it won’t ask for a larger revenue share or other concessions?

Alternatives may emerge, but none seems immediate. One consortium of major magazine publishers, including Time Inc., Conde Nast, Hearst, Meredith and News Corp., is preparing to launch its own app marketplace to sell digital editions on their own terms for Android devices. Competing ways to distribute publications for iOS devices may follow.

Time will tell if major publishers agree to join Apple’s Newsstand. The company did not announce any media partners Monday when it previewed Newsstand along with the other features of iOS 5.