The Brewing Battle Over Paid Content Models

By | February 21, 2011

There’s been a bit of resurgence in interest regarding the rapidly changing dynamics in the publishing business as of late. While the talk of paywalls in front of currently-free content on news sites has been discussed (and sometimes implemented), paid content just got a whole lot more interesting.

Last week, Apple announced its long-awaited content subscription model that can be deployed in apps sold on its App Store. Previously, if publishers wanted to post a new issue of a magazine, they would have to do a traditional “newsstand” model where a new app was posted to the App Store each month. Now, new issues can be purchased inside a central app through subscriptions… for a price. The controversy that comes along with Apple’s announcement is that they plan to take 30% of each subscription if it is sold through Apple’s system (it will not require a piece of the action if the subscription was generated outside of Apple’s system, such as on publisher’s or content provider’s direct Website). Apple will also require publishers to use uniform subscription pricing, meaning that if a subscription costs $9.99/month direct, it needs to be priced at $9.99/month through Apple, despite the 30% charge. This model affects not only newspaper and magazine publishers, but other paid subscription providers like Netflix, Hulu, Rhapsody, and even Amazon.com.

The day after Apple’s announcement, Google announced the launch of One Pass, its own subscription model for selling content on smartphones and tablets. With One Pass, Google aims to create a “pay once, view anywhere” model, where a user has access to all subscriptions via one account that can be viewed in a browser or in a mobile application. Payments will be administered through the Google Checkout online wallet service. In contrast to Apple’s 30% rake, Google plans to retain around 10% of each subscription depending on the publisher, although further information on how the share is determined is not currently available. Instead of just a straight subscription option, Google plans to offer more flexibility in its payment models, including micropayment services like pay-per-article, metered access, and more. While Apple’s model is exclusive to Apple product users, it remains to be seen how this model will be adopted outside of Google Android phones (after all, access via Web browser has no App Store approval barriers to break through).

There has been a healthy dose of criticism regarding the Apple model and a great deal of praise for Google’s model in response, although the reality is not that simple. In the view of many, it may be a brazen attempt by Apple to demand 30% of each subscription; many have in fact called it anti-competitive and have pointed to Apple’s stronghold in the music industry with iTunes as a potential result of what could happen. With Apple as an intermediary, publishers may fear losing a direct relationship with readers and further commoditization of the content they provide (publishers would receive high-level personal details of Apple-driven subscribers only if they opt-in to share that information).

Nevertheless, look at what Apple provides: access to millions of users that have already proven they have no problem dropping anywhere from a few dollars to hundreds of dollars on mobile apps. Ever since iTunes, the key for Apple has been to make these models as easy and seamless to participate in as possible, to which it still holds an advantage. In the end, especially for publishers, a 30% share to Apple might still be cheaper than the existing cost of new subscriber acquisition and even renewal. By offering premium content to existing subscribers on the iPhone or iPad, it may give readers one more crucial reason to renew. There is no doubt that Apple’s iAd platform fits within these subscriptions in some way, which have yielded impressive results for the advertisers that have participated thus far.

So what about Google? While One Pass can be tied to either the Web or a mobile application, there is obviously a strong play with enabling subscriptions for Android-based mobile devices. According to most recent estimates, Android phones have well-outpaced other mobile operating systems in market share due to Google’s strategy of making the OS available on a very wide variety of phones. While this strategy has led to a massive base for Google, it has also led to inconsistent experiences for users depending on the device used, as well as headaches for developers to try and account for the sheer variety of handsets supported. Could the experience be the Achilles’ heel for Google’s One Pass? Furthermore, newspaper publishers in particular have been hostile toward Google in general due to its news aggregation services. While Google brings thousands or even millions of eyeballs to their pages (and subsequently, ad revenue), many feel that aggregation has prevented paid content models from being employed for fear of losing those eyeballs. Perhaps this move coupled with Apple’s announcement will be cause for publishers to truly evaluate what models and partners are in their best interests to utilize.

Of course, these announcements within the past week are just the first steps in what will likely be the shift to legitimate paid content models for publishers and other content providers. While companies like Netflix have a good hold on how their models are effective (they started online with a paid model), it has been a bumpy road for magazine and newspaper publishers to figure out how to provide enough digital value for users to fork over money for something that was originally put online for free. Will a streamlined experience, instant updates, interactive features, and ubiquitous access to subscribed content finally solve this problem? Furthermore, if it does, how much are publishers willing to share for that access? These answers to these questions could lead to success for Apple or Google, but also hopefully to those publishers that have been struggling to find digital success.

Update: I noted earlier that Google’s subscription share would only consist of a 2% transaction fee associated with Google Checkout purchases. After further investigation, this information has been found to be incorrect. The post has been updated to reflect that Google has been quoted as saying that its subscription share will be around 10% depending on the publisher, but it did not elaborate on those plans. Additional details are not yet available.

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