Power to the Publisher? Anger Grows over Apple App Tax

After nearly a year of seemingly easy cooperation and mutual admiration between Apple and many content providers happy to deliver their services to a new popular platform, Apple CEO Steve Jobs has  changed the rules ─ and the resulting backlash could affect what appears and doesn’t appear in Apple's App Store.

The new revenue-sharing structure unveiled Tuesday (Feb. 15) forces publishers who charge subscriptions outside of the app to either pay up to a 30 percent tax on subscriptions purchased from inside the App Store – or not use the service.  In addition, Apple alone will receive customer data, including names and contact information.

"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," Jobs said in a statement.

A looming showdown?

The tax, in which content providers essentially pay for the privilege of conducting business in Apple’s network, has already rankled some developers — and could spark an even bigger showdown, pitting the media titans that roam Silicon Alley against the current kings of Silicon Valley.

So far, however, bigwig media publishers have remained mum. But the fact that Apple's press release did not include any launch partners suggests the silence doesn’t represent complacency.

Still, not everyone sees the icy silence as a sign of a looming battle.

“The iPad is a boon for media companies, but not a magic bullet,” Zachary Clayton, managing director at the Emerging Media Research Council, told iPadNewsDaily. “While media companies may complain, giving Apple a 30 percent cut is far cheaper than the costs of postage and printing.  Still, the economics of paid general interest content will struggle.”

Clayton said publications such as The Wall Street Journal, which offers highly specialized content, will fare better than The Daily, a general interest publication. In the long-term, he expects the 30 percent fee to be a bargain for publishers, as iPad subscriptions dramatically reduce the costs of serving customers.

“Any publisher would have to admit that 30 percent to acquire a subscription is a great deal,” said Clayton. “Look at what they have to go through now to do that: They buy a list, send junk mail, call the person on the phone, ask for the credit card and then call again when they don’t pay the bill.”

All Online Content

While newspapers and magazines get most of the play when it comes to the iPad, Apple's subscription plan extends to all online content. This includes movies, music services, games and e-books.

And this is where the first shots are being fired.

Rhapsody, the largest digital music subscription service in the United States, called the new rules for iPhone and iPad app subscriptions "economically untenable" and said it will team up with with other music services to consider options, possibly including legal action against Apple.

“Our philosophy is simple too,” Jon Irwin, Rhapsody’s president, said in response to Jobs’ statement. “An Apple-imposed arrangement that requires us to pay 30 percent of our revenue to Apple, in addition to content fees that we pay to the music labels, publishers and artists, is economically untenable."

Irwin said Rhapsody could not continue to offer their service through the iTunes store if subjected to Apple’s 30 percent monthly fee versus a typical 2.5 percent credit card fee.

While this certainly may be the case, Clayton argues the balance of power is shifting back to people who actually create content, and away from those who only distribute it.

“The people wringing their hands aren't adding direct value to the content,” said Clayton.  “Of course, people who built distribution networks are upset.”

Others might not see it in such black-and-white terms.  A Sony executive told Forbes that Apple is “holding publishers at ransom,”  while the Online Publishers Association, whose members include Time, Bloomberg, Conde Nast and numerous other large media outlets, suggested the plan lacks flexibility that will allow them to serve all their customers.

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This story was provided by IpadNewsDaily, a sister site of TechNewsDaily.