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The logic behind Apple’s give-us-half-your-revenue pitch to news publishers

Magazine publishers are on board with Apple’s new subscription news service. Newspapers aren’t.

Apple SVP Eddy Cue.
Apple SVP Eddy Cue runs the company’s media business.
Drew Angerer / Getty Images
Peter Kafka covers media and technology, and their intersection, at Vox. Many of his stories can be found in his Kafka on Media newsletter, and he also hosts the Recode Media podcast.

Apple says it wants to help save journalism.

All it wants in return is half of all the revenue journalists make when they sell their stuff through a forthcoming new Apple subscription service.

Cue internet outrage.

The argument, made by everyone from my colleague Casey Newton to Apple blogger John Gruber: 50 percent is way, way too high — “insane,” in Gruber’s words — given that Apple normally takes 15 percent to 30 percent of the revenue it generates when someone buys something from its App Store. Insult to injury: Apple’s new arch-enemy Facebook takes zero percent when it helps someone subscribe to a publication.

So what is Apple thinking now?

Here’s the short answer, which I’ve cobbled together by talking to industry sources: Apple has already signed many publishers to deals where they’ll get 50 percent of the revenue Apple generates through subscriptions to its news service, which is currently called Texture and will be relaunched as a premium version of Apple News this spring.

And some publishers are happy to do it, because they think Apple will sign up many millions of people to the new service. And they’d rather have a smaller percentage of a bigger number than a bigger chunk of a smaller number.

In the words of a publishing executive who is optimistic about Apple’s plans: “It’s the absolute dollars paid out that matters, not the percentage.”

That argument seems unlikely to persuade the big newspapers, including the New York Times and the Washington Post, that Apple is trying to add to its service. Both of them have built their own digital subscription businesses over the past few years, and they may feel that they’re better owning 100 percent of a product they control than a piece of a collective run by a giant tech company.

But we’ll let Apple — which declined to comment — and its negotiating partners — who don’t want to say a word about Apple on the record — sort that for themselves.

But here’s a quickish story about how we got here:

Remember the iPad and how it was going to revolutionize the publishing business? People really thought this back in 2009, and that’s why a consortium of publishers, including Conde Nast, Hearst, and Meredith put together a “Netflix for magazines” service, which let subscribers read all the stories they wanted for a monthly fee.

That service, which was eventually called Texture, paid out 10 percent of its monthly revenue to its owner-operators, who divvied it up based on the usage their titles generated. And publishers who sold their stuff through the service but didn’t own a piece of Texture captured 50 percent of the revenue, also cut up by usage.

Texture never got much traction, and last year Apple bought it for an undisclosed sum. It will make up the base of the new subscription service Apple intends to launch for $10 a month.

And after Apple bought Texture, it created new deals for magazine publishers, which gives them about half of the subscription revenue the service generates. Publishers also keep 100 percent of the ad revenue their titles generate.

That’s still a very different split than Apple offers video distributors like HBO, which can keep as much as 85 percent of any revenue generated by a subscription sold through Apple’s App Store, or other app developers like Spotify or Fortnite creator Epic Games, which keep 70 percent to 85 percent of the revenue their apps generate via Apple.

Facebook, meanwhile, doesn’t capture any revenue when it helps news publishers sell subscriptions — but it doesn’t actually sell subscriptions itself. Instead, Facebook directs its users to publishers’ sites and lets them handle the deal.

You could argue that since the-thing-formerly-known-as-Texture will be an Apple-owned service, it’s fair for Apple to treat it differently than stuff owned by Apple’s App Store partners. But that’s not terribly convincing, given that the service can’t exist without the content. Also, Apple pays out more than 70 percent of its revenue to the music owners that power its Apple Music service.

The more compelling argument, I’m told by publishers that have agreed to work with Apple, is that Apple is going to spend a lot of time and money promoting the new service and thinks it can generate many millions of subscribers.

The best evidence for that theory: Apple Music, which Apple launched in 2015, has signed up more than 50 million paid subscribers, due to Apple’s promotional muscle and the fact that the service comes preloaded, with a free trial, on Apple iPhones.

Again, none of that may convince the Times, the Post or the Wall Street Journal (which first reported on Apple’s proposed revenue share*) to join up.

Unlike most of the magazine publishers that are currently in Texture, those papers have built meaningful digital subscription businesses already, so an all-you-can-eat service that bundles them along with everyone else could cannibalize what they have. They are also understandably skittish about a service where Apple would have the primary customer relationship.

And if arguments between Apple and media companies over subscription terms sound familiar, there’s a reason. Sometimes these things take a long time to resolve.

* See, guys? Not that hard. Couple words and a link.

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