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Publishers balk at Apple's App Store subscription terms

February 16, 2011 — 10:10am ET | By Jason Ankeny

In the hours after Apple (NASDAQ:AAPL) introduced a new subscription platform for all content-based applications in its App Store storefront, publishers have expressed serious reservations over the terms of the service, which gives Apple 30 percent of subscription revenues as well as ownership of consumer data like names and email addresses. When contacted by The New York Times, the three largest U.S. publishers--Time Inc., Hearst Magazines and Condé Nast--all declined to indicate whether they would sell magazine subscriptions for iOS devices under Apple's stated terms.

"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," Apple CEO Steve Jobs said in a statement. "All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one-click right in the app. We believe that this innovative subscription service will provide publishers with a brand new opportunity to expand digital access to their content onto the iPad, iPod touch and iPhone, delighting both new and existing subscribers." Additionally, Apple said publishers may no longer provide external links in their applications to allow the customer to purchase content or subscriptions outside of the app.

"This is an important step, but it really needs to go further," said Association of American Media CEO Nina Link. "There's probably some sense of frustration because publishers would like it to be more flexible. I think everybody realizes it's early in the game and there will be other tablets that may have friendlier business terms and that this may evolve." At least two magazines--Elle, owned by Hachette Filipacchi, and Popular Science, owned by the Bonnier Corporation--have confirmed they will offer subscriptions through the App Store.

Apple's new subscription sales model also poses tough decisions for digital media service providers like Amazon.com and Netflix--for example, the new guidelines subject the sale of an Amazon Kindle magazine subscription or ebook download to the 30 percent transaction fee if the publication is purchased via the App Store. Kindle titles downloaded directly via the Amazon.com web store or video subscriptions purchased from the Netflix site remain exempt from Apple's terms of service. Digital music service provider Rhapsody issued a statement calling Apple's conditions "economically untenable," adding it will huddle with market peers to determine an appropriate legal and business response.

No less central to publishers' concerns: Apple's reluctance to share subscriber data. The computing giant said it will hand over some information with a subscription purchase, provided the consumers consent. Publishers are pushing for complete access to subscriber profiles--Apple stated that customers purchasing a subscription through the App Store will be given the option of providing the publisher with their name, email address and zip code when they subscribe, but that the use of that information will be governed by the publisher's privacy policy rather than Apple's. Publishers may seek additional demographic information from customers as long as they are given a clear choice, and are informed that any additional information will be handled under the publisher's privacy policy rather than Apple's guidelines.

"It seems like Apple is taking a step toward our position on subscription offerings," a Time spokesperson said. "But the announcement also raises many questions around consumer data that we would need to work through and agree on."

UBS analyst Brian Fitz speculates Apple's latest moves could raise the question of antirust violations. "It is possible that regulators will look into them," Pitz said. "And I think competition and pressure from others will push Apple to open up."

For more:
- read this New York Times article