A tectonic shift: Apple’s e.Publishing Plan Just Fell Off the Tree

I was wondering — just this morning — as  I read a WSJ article detailing Apples new e.Publishing platform for the iPad, just how much do they earn when they distribute music, via its iTunes platform.

Well, as a result of today’s TechCrunch article we now know the answer. Talk about a “disruptive” technology and “disruptive business strategies.” Frankly, this one’s only going to be  fun to watch if you don’t have a dog in this fight.

We will get to the numbers in a minute, but first, the question is: How much pricing power exactly does Apple have over publishers desperate to figure out a digital strategy that results in paying subscribers? The Answer >> A lot—at least that is what Apple is betting with its new subscription billing service.

Here’s the Story-Behind-The-Story: Turns out, Apple is taking a 30 percent cut of all digital subscription revenues.

Up until now, Apple took a 30 percent cut of one-time purchases in iTunes.

But here’s the NewsUnwrapped (and here’s why all of this matters so much). Turns out, publishers and other media companies with subscription businesses care very much, because Apple’s model is so new and so fiscally aggressive:

Essentially, Apple is saying that if they deliver a paying customer, they want to take 30 percent of their subscription dollars — FOREVER — as long as they consume your media on our devices.

You could argue that iTunes is the new digital newsstand, and so it deserves a cut. But here’s the rub, and the true tectonic shift taking place in ePublishing, today:

• Magazine companies typically take as much as 50-75 percent of the cover price of a magazine sold at a newsstand.
• But that is just on a per-issue basis (not forever as Apple is proposing).
• In practice, newsstands are simply lead generators which get people to sample magazines and newspapers before a portion of those people convert to paying subscribers.
• The newsstands don’t get anything extra for helping to bring in a new subscriber, forget about an ongoing cut of the subscription fee.

Today, however, Apple is forcing media companies to forget about that old model. There are new rules in its e.digital newsstand. The question is, will consumers decide that they want to read digital magazines on their iPads, and if so, the publisher may have no choice but to do what Apple requires.

Problem is, it’s a huge game of chicken. The fact is that publishers are perishing and filing for bankruptcy protection almost daily, so such a paradigm shift — so much in Apple’s long-term favor — could very well kill their business, all together.

Not only would they be handing over a substantial portion of their revenues to Apple, but they get virtually no customer  data in return. It’s that credit card data they use to do their consumer marketing and sell those readers to advertisers.

Buckle up, there’s most definitely going to be lots of resistance to Apple’s subscription scheme. Beware of the antirtrust claims.

In the end, the old publishing guard will fight it as long s they can, while new entrants with nothing to lose will build readerships on the iPad.

Looks like it’s the end of one era and the beginning of yet another …. Stay tuned.