Back in August, a squabble erupted between the game-maker Epic and the flat-glass-slab-maker Apple. Epic, which publishes the uber-popular Fortnite, didn’t like the fact that Apple takes its customary 30% cut from any money iPhone users spend in its games. It tried to get around that limitation; Apple didn’t like it and kicked them out of the App Store. Lawyers were summoned; chests were puffed.
At issue, really, was whether or not Apple’s 30% tax on money flowing its payment system was an abuse of its monopoly over installing software on iPhones and iPads. (The same, roughly, applies to Google’s control of its Android app store.) The two tech giants were suddenly under increased pressure — from developers, regulators, and potentially courts — to seem less, er, extractive.
At the time, I wrote that one beneficiary of this contretemps could be news outlets. Publishers don’t produce games (usually), but they do sell plenty of monthly and annual subscriptions. And many of them do so through Apple’s payment system — often jacking up the price a few bucks to make up for Apple’s vig.
Apple on Wednesday announced a reduction to its longstanding App Store commission rate — one of the most substantial changes to how iOS developers earn money in the history of the iPhone maker’s digital app marketplace — as part of a new program for small businesses.
The new App Store Small Business Program, as it’s called, will allow any developer who earns less than $1 million in annual sales per year from all of their apps to qualify for a reduced App Store cut of 15 percent, half of Apple’s standard 30 percent fee, on all paid app revenue and in-app purchases.
The company says the “vast majority” of iOS app developers should be able to access the program, but Apple declined to say what percentage of its more than 28 million registered app makers would qualify. Apple also declined to specify how much of its App Store revenue would be affected by the reduced commission.
Until now, news publishers selling a subscription via the App Store have paid Apple 30% for the first year and 15% for an individual subscriber’s years after that — but of course every subscriber has a first year, but not all of them have a second. For a publisher who qualifies, this should boost its takehome revenue for a new subscriber by [launches Calculator app] a little more than 21%.
(N.B.: Complete details for eligibility are set to arrive “in early December,” so there might be qualifications that go beyond the $1 million number. That cutoff is for App Store revenue only, not your total revenue, so all but the largest news companies will likely be eligible. You might suddenly see companies like Gannett — which currently has 97 different apps on the App Store — redefine those apps’ “publisher” as the local daily in order to get under that $1 million bar.)
What does this mean for publishers? Well, they’ve got a few options:
If they currently sell subscriptions in the App Store, they can just…take the money! Send Tim Cook a nice holiday card, tweet something nice about Ted Lasso, and enjoy the revenue boost.
The Arizona Republic, for example, charges $9.99 a month for a subscription via Apple. That has meant it has been getting $6.99 a month, after Apple’s cut, for new subscribers. Now it’ll get $8.49.
If they’re currently charging more in the App Store than for direct subs, they can decide to narrow that gap and lower the price. For instance, The Washington Post will happily directly sell you a digital subscription for $10 a month — but if you buy it via Apple, they’ll charge you $14.99. ($14.99 minus Apple’s 30% cut is $10.49; essentially, the Post is passing on Apple’s cut to the reader.)
If the Post thinks it’d get more App Store subscribers charging, say, $12.99, it could lower the price and still end up ahead. (A 15% Apple cut of $12.99 would still net $11.04, more than what they were getting before.)
If they haven’t yet offered subscriptions through Apple until now, the idea is now more appealing. Ever since Apple debuted iOS subscriptions in 2011, publishers have had to weigh the pros and cons.
Pro: Subscribing to something on your iPhone is ridiculously simple — no forms to fill out, no credit card to enter, just a couple of taps. Virtually frictionless. Pro: Most of American news outlets’ best customers use iPhones.
Con: Apple takes that cut — meaning you either just lose that revenue for the length of their subscription or you jack up the price to cover it, making it less appealing to readers. Con: You’d rather own the customer relationship directly — so you have the knowledge of the customer in order to tailor marketing and offers, not Apple.
Five or six years ago, most American newspapers seemed to think the cons outweighed the pros and stayed away from App Store subs. Over the past few years, as digital circulation revenue has become more important to publishers, more have decided to take the dive, if with some reluctance. This cut will likely convince a few news execs it’s worth the hassle to dance with Cupertino. And for those publications that are already in the App Store, they’ll probably feel more comfortable directing marketing toward it as a subscription option — rather than treating it as a suboptimal side door they’d prefer you not discover.
Whichever choice a publisher makes, this is good news. Let’s hope Google follows suit for Android.
One final thought. News industry executives have spent a lot of time the past few years talking about their need to negotiate, collectively, a “fair deal” with Apple, Google, Facebook, and their tech brethren. (I confess I have found media companies’ sudden interest in collective bargaining a little amusing, given how so many of them think of their employee’s union organizing.)
That impulse has always struck me as strange as anything more than a PR move. For one, media companies can never agree on anything. For two, the incentives for big dogs like The New York Times or the Post are now wildly different around digital strategy from their friends at the Smalltown Daily Gazette.
And for three, why would these companies set the precedent of negotiating an individual deal with a bunch of newspapers on anything? Facebook doesn’t pay anyone for the right to publish their content in the News Feed. (You pay them!) Google doesn’t pay anyone for the right to show up in search results. (You pay them!) And Apple doesn’t decide to give one subset of one class of app publisher a special deal because they…like democracy? Want to enrich Alden Global Capital?
No — there are only three circumstances in which the tech giants will change their terms on a core platform for a specific publisher or set of publishers.
Look at this case. Epic, by publishing the most popular and top-grossing game in the world, had about as much power as an App Store publisher can have. But Apple still wouldn’t reduce its cut of Fortnite revenues — to the point that it was willing instead to let the situation blow up into a huge public mess. And now that that mess is increasing its regulatory risk, it’s willing to do something much more systemic, like cut the rate to 15% for small app publishers. It would rather cut the rate for hundreds of thousands of publishers than set the precedent that one pulling a “give us a side deal or we’ll pull our content” gets rewarded.
Congratulations to Epic for prompting this change — even if, as a giant game publisher, it won’t directly benefit from it. The Fortnite fracas raised the broader issue of App Store monopoly in the public’s mind, and Apple responded in order to get a few headlines about how it supports the little guys and hopefully stave off regulators a little longer. That’s good for news publishers. But it should also remind them that the power relationship between the tech giants and newspapers is awfully one-sided.