Analysis: How Apple's new subscriptions stack up to the competition

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Apple’s newly announced subscriptions policy for App Store offerings has triggered a round of griping from companies that sell content or subscriptions from their mobile apps. But a closer look at Apple’s new rates and terms suggest that the company’s policy isn’t that different from what rival services offer—and in some cases, Apple’s terms are more favorable.

Before this week, publishers were able to give away their apps in the store for free, but shuffle users out to Mobile Safari when it came time to actually purchase content for that app. That changed Tuesday, when Apple updated its rules. Now, any content available outside of an app must now also be made available via in-app purchase, with Apple taking a 30 percent cut of any revenue. Users can still buy that content on-device via Mobile Safari or even their desktop computers, but Apple wants its chance at making money from content that is bought and used for its mobile platform.

Right on cue, Apple’s policy came under fire from pundits and publishers. In a statement, music subscription service Rhapsody called Apple’s new rules “economically untenable” and suggested it would work with other publishers to come up with “an appropriate legal and business response to this latest development.” A post at the tech business blog VentureBeat asked “how far can Apple push developers?” Some law professors speaking to the Wall Street Journal even raised the possibility of antitrust probes against Apple.

Interestingly, however, Apple’s rules don’t seem that out of line when compared to what rivals are offering. Admittedly, it’s a small field of competitors—Android, Windows Phone 7, and BlackBerry platforms do not yet support subscriptions for app content. Barnes & Noble strikes deals with publishers for content on its Nook e-reader, though the company wouldn’t comment to Macworld on how it splits subscription revenue with publishers in its Nook store. (Its self-publishing book rates, on the other hand, are publicly available.)

That leaves Amazon and its assortment of Kindle offerings, including the Kindle e-reading device. Like Apple, Amazon makes a popular gadget for content consumption, serves as the sole (legitimate) gatekeeper for getting the vast majority of content onto it, and publishes the fees it charges for content delivery. Both large publications like New York Times and individual bloggers like you and me are able to publish content directly to the Kindle. But if we want to do so, we have to agree to Amazon’s revenue terms.

In a nutshell, Amazon used to give publishers only about 30 percent of the revenue collected from subscriptions sold through Kindle. In December 2010, Amazon increased that amount to match Apple’s existing 70-30 split with developers. But a publisher will only get that rate from Amazon if it meets certain qualifications, such as submitting its content in a format that can be read across all Kindle devices and apps. Furthermore, self-published bloggers still only get 30 percent of the fee Amazon charges Kindle customers.

Regardless of which revenue rate publishers qualify for, Amazon also charges a small fee for delivering content over its 3G Whispernet service, billed at 15 cents per MB. Remember, with each 3G-enabled Kindle, Amazon includes lifetime wireless service to download content for free, but passes on 70 percent of the content delivery costs to publishers.

To use Amazon’s best case revenue split and pricing formula—(revenue - delivery costs) * 70 percent—a monthly publication delivered wirelessly that costs $10 and weighs 9MB will end up netting the publisher $6.05 per subscriber. With Apple’s terms and a native app in the App Store, that 30 percent cut would give the publisher $7.

Barnes & Noble only publicizes its self-publishing rates for books, but they’re worth mentioning. If your book costs $3 to $10, you’ll get 60 percent of your price (minus wireless delivery costs). If your book costs $11 to $200, you’ll get only 40 percent of your price.

One day after Apple announced its App Store subscriptions features and new rules, Google tossed its hat into the ring by announcing One Pass, a new payment system that allows publishers to charge for digital content. Designed primarily as a browser-based payment tool that's attached to readers’ Google accounts (and billed through Google Checkout), One Pass allows publishers to charge content subscriptions, day passes, membership discounts, or even per-article fees. Users can login via the browser on just about any modern device and will need an Internet connection to read their paid content, but Google will take only a 10 percent commission—undercutting what Apple and Amazon charge. Of course, Google’s service is browser-based and not necessarily tied into a hardware device, which probably had an effect on the share of publisher revenue Google decided to claim.

Of course, the real point of contention around Apple’s new subscription features rears its head when a publisher wants to sell content on iOS devices through a competing store such as Amazon’s Kindle app or Zinio’s digital magazine stand. Though Apple has so far been happy to approve quite a few third-party stores in the App Store, its new terms are clearly not winning the company much applause from them right now. Not only are margins already thin for some of these companies, but they’re also used to avoiding Apple's cut of in-app purchases by redirecting consumers to a browser-based store for purchases. Under Apple’s new rules, they’ll have to start paying Apple and agree to consumer-friendly terms like making it easy to cancel a subscription and protect personal information.

Again, though, a comparison to rival devices is revealing. Amazon offers no access to third-party stores on the Kindle, and even though the Nook is based on Android, Barnes & Noble has locked its reader down by removing access to Google’s Android Marketplace and porting only a handful of apps that it chooses to the Nook.

However, like the iPad, these devices do offer a content consumption alternative to their built-in stores—a browser. The Kindle’s browser may be technologically limited in some ways when compared to the iPad and the Nook, but all three devices have a browser that is not restricted from visiting any site. More to the point, it doesn’t cost anyone 30 percent of anything to use those browsers.

There are also some open questions about which types of content and services will be affected by Apple's new rules. Some of the language Apple uses in its terms suggests that content delivery services—such as magazine publications and book stores—will fall under the new rules, while streaming subscription services—like Netflix and Rhapsody—might not. Macworld has asked Apple for clarification and will update once we receive a comment.

It's up to the content providers to weigh whether 30 percent is too high a price to pay for access to the throng of App Store customers, but it is also up to Apple to clarify some of the boundaries of these new rules. For now, when compared to the competition, what Apple is imposing doesn't seem as out of line as the initial uproar might have you believe.

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