Steve Jobs has thrown down the gauntlet: “This is my sandbox and you’ll pay to play my game.” I remember disliking that treatment when I was 4 years old and I don’t like it any better now that I’m…well, never mind that. Demanding 30% of subscription revenues for providing a trivial service to publishers (Google’s OnePass subscription service, announced a day after Apple’s, will charge 10%) is a bully’s bet, predicated on the myopia that Apple’s business is invincible. But let’s face it, there are going to be a lot more tablet products entering the fray before the inevitable Darwinian contraction to two or three platforms (or the development of operating systems that play well together). Very soon, it won’t solely be about the device, it will also be about what’s on the device. I think we’ve been to this movie before.
Perhaps even more troubling, Jobs’ edict essentially requires paid-content providers to relinquish control of the customer relationship. Owning this relationship is critical to revenue generation for publishers and it is a centerpiece of print media’s eons-long experience mining that relationship–a revenue source that digital businesses tend to little appreciated and under use.
But I’m glad this battle has been drawn because, at long last, it focuses attention on a remote, disdained, yet critical corner of the media space: the P&L.
Contrary to legend, delivering content digitally only theoretically costs publishers less than printed product. Looking at the whole P&L, publishers must make up for dramatic declines in $50 CPM (cost per thousand) print ads, which are hardly offset by increases in $5 CPM digital advertising. Plus audiences sizes themselves have been reduced as publishers shrink subscriber volume to profit-generating levels and have experienced double-digit percent declines in single-copy sales (once a profitable source of customers). Further, entirely new costs are hitting the P&L–such as those to convert old and produce new digital content, to deploy it across numerous platforms, as well as the incremental cost of digital sales to develop, sell, traffic, and track campaigns. And of course, most paid-content providers still manufacture printed products.
In language anyone can understand: Print publishers in this digital age have lower ad and circulation revenues and significantly higher costs. And since these business operate in the real world of profit and loss–unlike many, many digital content counterparts–they desperately need to shore up revenues by extending the reach of their products. Frankly, even Google’s 10% cut may be too much, as Forrester Research’s James McQuivey asserted earlier today.
Apple’s aggressive game will likely push some publishers out of business, which seems a foolhardy gambit: don’t they need sophisticated, beautiful, branded, edited (fill in your adjective of choice) content to showcase their sophisticated products?