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Apple's dirty deal with publishers

February 12 · Issue #288 · View online
The Interface
Programming note: Revue was down on Tuesday, preventing me from putting together the usual newsletter for you. But my access was restored just before end of the day, allowing me to at least send out today’s column. I’ll be back tomorrow with a column and links, Revue permitting.
Social networks influence democracy in part because they occupy a large portion of our shared information sphere. Which voices bubble up there — and which are smothered — affect the discussions we have, and the actions that we take as a result. But a tech giant doesn’t need to have a social network to alter our information environment. If Apple is to have its way, all it may need is the iPhone.
The Wall Street Journal reported on Tuesday that Apple, which is preparing to introduce a subscription news service, is asking publishers to give the company 50 percent of any revenues that they generate. Benjamin Mullin, Lukas I. Alpert, and Tripp Mickle report:
Apple’s plan to create a subscription service for news is running into resistance from major publishers over the tech giant’s proposed financial terms, according to people familiar with the situation, complicating an initiative that is part of the company’s efforts to offset slowing iPhone sales.
In its pitch to some news organizations, the Cupertino, Calif., company has said it would keep about half of the subscription revenue from the service, the people said. The service, described by industry executives as a “Netflix for news,” would allow users to read an unlimited amount of content from participating publishers for a monthly fee. It is expected to launch later this year as a paid tier of the Apple News app, the people said.
After giving up half their revenues, the remainder will be put in a pot and then split among publishers based on how much readers engage with their stories. How much revenue could such a scheme generate for publishers? Well, consider what happened when YouTube instituted such a scheme with Red, its ad-free subscription offering. From reporter Sahil Patel:
According to five media executives that oversee multiple high-performing channels on YouTube, YouTube Red subscription revenues are scant compared to the money they can make from advertising. One executive at a network that gets more than a billion views per month on YouTube said YouTube Red subscription revenue accounted for about 7 percent of the network’s “YouTube-monetized” revenue in 2017. “That’s with just what YouTube monetizes and doesn’t include [the ads and sponsorships] that we sell,” he said. “If you add in what we sell, it becomes less than a percent.”
The four other media executives shared similar findings. One executive at a network that gets hundreds of millions of views per month said YouTube Red subscription revenues account for more than 10 percent of the network’s total YouTube-monetized revenues. Another executive, poring over data for a channel with more than 1 million subscribers, said the channel has made around $4,000 from YouTube Red since last summer.
The explanation for the low revenues is simple: as more publishers come onto the platform, whether it’s YouTube or Apple News, the competition for their eyeballs increases, and the revenue declines accordingly.
It’s easy to see why Apple favors the scheme. It gets a windfall of new revenue at a time when the decline in iPhone sales has made selling additional services a high priority. It gets to bring more high-quality publishers onto its platform, burnishing its reputation as a premium brand. And it gets to talk loudly about how much it loves journalism, as Apple vice president Eddy Cue did when announcing Apple’s acquisition of the subscription news app Texture last year. “We are committed to quality journalism from trusted sources and allowing magazines to keep producing beautifully designed and engaging stories for users,” he said at the time.
Publishers, meanwhile, may need to hire new employees to manage the partnership, build the necessary product integrations, and address customer service issues. At a time when the industry is already laying off hundreds of journalists, asking them to build out their partnership and product teams in exchange for a potential revenue increase in the single digits appears laughable on its face.
The larger issue, of course, is that Apple feels comfortable asking publishers for 50 percent to begin with. It’s a potent symbol of the concentration of power among a handful of tech companies, along with the total inattention to marketplace competition by regulators. Apple, which owns more than 60 percent of the US smartphone market, is committed to extracting the maximum value out of its ecosystem. It’s good at maximizing value: the company has more than $215 billion in reserve.
It’s worth noting that even Facebook, which does not exactly enjoy a reputation for being friendly to publishers, allowed its partners to keep 100 percent of the ad revenue they generated when it launched Instant Articles. Apple will technically let publishers keep 100 percent of revenue for ads they sell, but they have to be sold in the custom Apple News format rather than the standard formats publishers are used to selling. Most just let Apple sell their ads for them, and as a result, the app is generating little money for publishers, Will Oremus reported last year.
A world in which publishers have to give up half their revenues to Apple is just as worrisome as a world in which publishers are totally dependent on the recommendation algorithms of social networks. In both cases, distribution is artificially limited and taxed by platforms that have only a passing interest in the greater good. The era in which city newspapers operated local monopolies had many problems of its own — but it supported good journalism in a way that no tech platform will even pretend to.
Usually, I’m glad when tech platforms offer publishers new ways to make money. More money in journalism means more journalists investigating the darker corners of our republic. But Apple’s approach seems to designed to ensure that the company makes the absolute most it can get away with.
Welcome to capitalism, I know. But every few months, Tim Cook gets on stage and asks the world to hold his company to a higher standard. This proposal doesn’t meet it. When he takes the stage next month, here’s hoping he has better news.

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