Apple, Google square up

18 February 2011

NEW YORK: Apple and Google are stepping up their battle to attract publishers, having launched competing digital subscription services.

Earlier this week, Apple rolled out a new subscription platform, made available to all companies running relevant applications on its App Store.

The platform included newspapers, magazines, music and video, and marked an extension of a system originally developed for The Daily, News Corp's title sold only via the iPad.

Content producers set the price and duration details, while Apple processes payments, and retains nearly a third of sales, as is the case regarding purchases completed through standard apps.

"Our philosophy is simple - when Apple brings a new subscriber to the app, Apple earns a 30% share," Steve Jobs, Apple's ceo, said in a statement.

"When the publisher brings an existing or new subscriber to the app, the publisher keeps 100% and Apple earns nothing."

Among Apple's broader terms is that media owners ensure any special offers apply equally to applications.

"That 30% is going to be an issue," said Michael Gartenberg, an analyst at Gartner.

"You don't want to ignore the Apple customers because they're pretty good customers. On the other hand, 30% can be hard to come up with. It's a numbers game."

Rhapsody, a digital music property, has spoken out in opposition to such a model, suggesting its continued presence on iTunes appeared increasingly problematic.

"An Apple-imposed arrangement that requires us to pay 30% of our revenue to Apple, in addition to content fees that we pay to the music labels, publishers and artists, is economically untenable," said Jon Irwin, Rhapsody's president.

"The bottom line is we would not be able to offer our service through the iTunes store if subjected to Apple's 30% monthly fee versus a typical 2.5% credit card fee."

Julia Schulhof, director of emerging platforms for Hachette Filipacchi Media US - which will sell monthly and yearly payment plans - was more positive.

"Rather than a complicated route to purchase, now we're using a seamless subscription scheme, and a cost-effective price point," said Schulhof.

"This is a game-changer in our industry."

Google's rival offering, One Pass, works across the web and mobile, and has already secured Axel Springer, the media group, as a client.

The key differentiating feature of Google's service is that it commands 10% of any sales, considerably below the figure demanded by Apple.

"We aren't in this to make money. Google makes money in other ways," Eric Schmidt, Google's ceo, argued. "We are trying to get money to people who are producing high-quality content.

"Our intention is to make no money on it. We want the publishers to make all the money."

James McQuivey, an analyst at Forrester Research, predicted Google may benefit, as Apple risks alienating potential partners.

He said: "10% is certainly more viable than 30%, though it's still two to three times what you pay to American Express or MasterCard for handling transactions online.

"And that's the wall publishers are facing right now. Many will choose to adopt One Pass for web content transactions and give up significantly more than they would to a credit card company in exchange for being able to signal to Apple that they won't stand for its tactics."

Data sourced from Associated Press, San Francisco Chronicle, Wall Street Journal, Financial Times; additional content by Warc staff