When Apple Inc. unveiled the iPad last year, co-founder Steve Jobs, with his characteristic aggrandizing touch, called it nothing short of "magical." But he wasn't the only one who thought so. Publishers were also hoping that the iPad would have the mystical power to turn back time.
Newspapers and magazines are still feeling the impact of the economic downturn, but their woes stretch back years, to the popularization of the Internet as a way to consume news. The publishing industry still struggles to stand out from a churning sea of unpaid online content. Few publications have enjoyed much success in persuading their readers to pay for digital products. The reader-friendly tablet, publishers thought, could be the device to change all that.
Now it seems they should have been more careful what they wished for. Apple's long-awaited system to sell subscriptions on the iPad, unveiled this month, gave publishing companies a new way to charge for magazines and newspapers. But the response was not entirely friendly. Almost immediately, the industry, which had been looking to the iPad as its possible saviour, attacked the terms as onerous: if subscriptions are bought through iTunes - and many readers will surely prefer to do it that way, given its popularity - Apple will take 30 per cent of the price, and will keep most of the subscriber information for themselves.
"This trips us up pretty good," said Earl Wilkinson, the executive director and chief executive officer of the International Newsmedia Marketing Association (INMA), a not-for-profit industry group made up of news media companies from around the world. Within days of the Apple announcement, the group held a roundtable at which publishers from Europe, Britain and Canada expressed their fears over the new model.
While much has been made of the 30-per-cent levy, it's the least of the industry's problems. After all, traditional newsstands selling products on paper keep a much larger share, roughly half of the cover price for most magazines. Most publishers are actually much more concerned about other restrictions, Mr. Wilkinson said. Under Apple's rules, for example, publishers can't offer a discount to customers who bypass iTunes and buy digital subscriptions through their own websites.
That's important, because if readers buy subscriptions that way, publishers can keep access to their personal data. And in a digital age, the advertisers who keep most publications afloat are demanding more detail than ever about who the readers are and how they interact with the product.
"It's all about control of the data … they're worried about having Apple established as a gatekeeper to the customer," said Morgan Stanley analyst Ben Swinburne.
But why should readers care, as long as they can still easily buy the content they want?
How this battle develops will shape everything about the media industry in a digital age. Apple has already invented a device (the iPod) and a payment and distribution system (iTunes) that gave it unparalleled dominance over the music industry. Most industry players believe this will be different. There will be much more competition, with a bevy of other tablets coming to market from powerful players such as Hewlett-Packard Co. and Research In Motion Ltd., and software from Google Inc.
No one knows how well these alternatives will succeed, or how much Apple's pricing model will dominate, but these questions will determine how much of what you love to read will be available to you in new forms, which media companies survive the transition - even the quality of what they can offer readers.
Google has started the competition, with its Android operating system for new tablets such as the Motorola Xoom and the Samsung Galaxy. Last week, a Google announcement was heralded for challenging Apple's subscription model: the Web giant unveiled the One Pass service, which will allow publishers to offer subscriptions while only giving 10 per cent of the revenues to Google and gives them access to information such as the name and co-ordinates of their customers. (But these subscriptions are for access to websites that require payment, not for app purchases.)
But with 15 million iPads sold last year, Apple still dominates the nascent tablet market - which is why, though many have complained about the terms, some publishers are cautiously embracing iPad subscriptions.
"We had to work with Apple, because at this point, there's really no alternative on the iPad," said Philippe Guelton, chief operating officer of U.S. publisher Hachette Filipacchi Media. The company is offering two of its magazines, Elle and Car & Driver, under Apple's new subscription system. He's optimistic that access to data will evolve for publishers, and says the company is working on ideas for other ways to keep track of its digital readers' demographics and use of the product.
Hachette has also demonstrated something important with its app: Elle print subscribers get free access to the iPad editions, meaning that bundling services for customers could be a possibility. Furthermore, Elle's print price is roughly $10 per year for U.S. subscribers, while the annual subscription for the digital issue alone is $18.99. Hachette seems to have found a way around Apple's rule that publishers can't price products outside the iTunes store more competitively. So far, Apple hasn't stopped the company.
In Canada, Rogers Communications Inc. is also planning on using Apple's subscription model for iPad versions of its magazines, which include Maclean's, L'Actualité and Canadian Business.
"We'll go with the Apple model … Look, nothing's perfect. But it's new, it has some fairness attached to it. It's a good start," said Rogers publishing president Brian Segal. He's also optimistic about the data, saying he believes Apple will share information such as time spent with the apps. Besides that, contests and surveys can give Rogers information about readers.
Mr. Segal said that Rogers won't follow Hachette's example by giving away the digital editions to print subscribers, but he said the company will explore bundled pricing, that offers print subscribers "premium" access if they pay a little bit more.
(The Globe and Mail has taken a cautious view of the Apple system. "We are very excited about the potential that new platforms such as the iPad have for our business - they can bring our journalism to new audiences in new ways and this can certainly help us generate more revenue," said Angus Frame, vice-president of digital media. "We are concerned that Apple's approach to subscriptions will make it challenging to obtain the kind of customer insight and product flexibility that we feel is critical to the future of our business.")
Publishers are also working to centralize the payment process, under their own system. Next Issue Media, a partnership among five of the largest U.S. magazine publishers, including Time Inc. and Hearst, is developing what it calls a "digital storefront," which has been in the works for more than a year.
While the terms of iTunes are dictated by Apple, the storefront is described as a solution developed by publishers, for publishers. It will gather many different titles in one downloadable application - publishers beyond the founding five will be able to join as members - and they can be purchased within that app. It is expected to launch this spring, and will only be available on Android devices at first.
A publisher-centric system would let magazines know more about readers, which is crucial. "In the end, it's needing to understand our customer," said Forrester Research analyst James McQuivey. "Every magazine company I work with is currently in the process of creating a single-view database that tracks their readers … If Apple takes away a chunk of their potential customer, they can't do that."
In defending the move to keep all of the user data for itself, Apple said its intention was to guard the privacy of users. But there's another explanation that's making its way around the publishing and advertising industry: Apple wants to use that data for itself to become a major purveyor of ads on mobile platforms like the iPad.
That could become a very profitable business. In the U.S. alone, spending on mobile advertising and marketing grew from $416-million (U.S.) in 2009 to $743-million in 2010, according to eMarketer.com, a rise of 78 per cent.
This year, it is expected to top $1.1-billion, which is why both Apple and Google have made big moves in the space. In late 2009, Google dropped $750-million for the mobile network AdMob. In an illustration of how fast things are moving, though, Apple picked up the mobile advertising company Quattro Wireless for a reported $275-million in January, 2010, then shut it down nine months later in favour of a system known as iAds.
One of the shiny new toys in the advertising industry, iAds provide a rich experience that can include video, audio, and interactive games. Movie iAds might include trailers, interviews with the stars, and the ability to buy tickets.
In theory, publishers should like iAds, since they keep readers within an app - unlike, say, an old-style banner ad which, when clicked, takes someone to another website. But Apple has been loath to share any meaningful data on the format's effectiveness.
And so far, most magazine publishers are refusing to take iAds. Condé Nast uses its iPad versions of GQ, Wired, Vanity Fair, Glamour, and The New Yorker as incentives, giving print advertisers in those magazines automatic placement in the corresponding digital versions. (They can, of course, pay extra to make the ads interactive.) Hachette does not use iAds in its Elle app, for example, and has no plans to, at least for now.
But cast forward a few years and you'll understand what the fight between Apple, Google, and the publishers is really all about. As readers migrate from print to digital subscriptions, their demographic information will move from the publishers to Apple. Publishers will no longer be able to use that information to sell ads, possibly ceding that field - and a major driver of their business - to Apple.
And Apple, which has been building up an extraordinary storehouse of data on its more than 100 million iTunes users - it knows what music, TV, and books they've bought, what online radio they listen to, and what podcasts they've downloaded - will be able to mine its data for extremely lucrative ad sales.
"The problem with all this stuff is, especially on the media side, it's so early days that to make any bold predictions you're going to end up looking foolish," Morgan Stanley's Mr. Swinburne said. "What we do know is that there's tension here, understandably, and we also know the interface that the tablet offers is a much better experience. There's going to be more money to be made, it's just how we chop that up, is where the battle is."