'ITunes for News:' Look Out, Publishers

Both The Wall Street Journal and Bloomberg News have reported that Apple is working on a "digital newsstand" venture that would handle subscriptions for newspaper and magazine publishers through the iTunes store. To publishers starved for revenue and eager to see the iPad as a route to the promised land of paying customers, this probably seems a great idea. They should be careful what they wish for. Is gaining a revenue stream worth giving up control over their relationship with readers—and advertisers?

According to the Journal article, which quotes "people familiar with the matter," Apple has talked to such publishers as Time Warner, Condé Nast, News Corp., and Hearst about selling subscriptions through an Apple system. Hearst—publisher of Oprah Winfrey's magazine, as well as Esquire and Cosmopolitan, among others—is said to be interested. The report said the print subscription service could be announced as early as October or November. Bloomberg's fundamentally similar report quotes Roger Fidler, program director for digital publishing at the Reynolds Journalism Institute at the University of Missouri, the same source quoted by the San Jose Mercury News in its report about the talks last week.

It's not surprising that Apple would want to extend its digital empire to newspapers and magazines, having more or less sewn up access to the music industry and made advances in movies, TV episodes, books, and games. Publishers are bound to be interested. For at least several years, newspaper owners in particular have dreamed about an "iTunes for news" that would funnel money into their pockets the way it does for the major record labels. The iPad and a digital newsstand seem to have the potential to realize those dreams. Should publishers take the bait? The short answer: That depends on how desperate they are.

An opt-in process for Apple readers?

As anyone familiar with the record industry knows, a deal with Apple would be the quintessential Faustian bargain. Have the labels made money from iTunes? Sure they have—possibly more than they would have without it. They make what Apple says they can make, and they price and offer their music in ways dictated by Apple. Even the attempt to offer flexible pricing for older music from the "back catalogue" took years of negotiations. Apple exercises a similar iron grip on which apps appear in the iTunes store, how much they cost, and what features they can have.

It's not just the 30-percent chunk of revenue Apple would take off the top that ought to concern newspapers. Their access to subscription databases is about the only proprietary information they can show to prove their value to advertisers. At this point, it's not clear what information, if any, Apple would provide to publishers about their Apple subscribers. The Mercury News report says the company has proposed an opt-in process that would ask subscribers if they want their information passed along. This would leave Apple in effective control of the relationship between participating publications and their readers.

The bottom line is that newspapers and magazines may find the potential for a quasi-guaranteed revenue flow from Apple too appealing to resist, as it was for record labels when iTunes came along—notwithstanding the potential that Apple will dictate terms. Once they've cut a deal, publishers could wind up sitting in a corner, counting digital pennies while Apple builds the business they should have built for themselves.

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