Arjun Moorthy - Feb 13, 2019

Apple News subscription is fatally flawed but not because of the revenue share

On February 12, rumors leaked of a subscription coming soon from Apple News. The details are being refined but the concept seems to be $10/mth to access all news content across dozens of paywalled sites.

Journalists were quick to focus on the 50:50 revenue share between Apple and publishers and cast it as pure extortion. Their degree of self-importance notwithstanding the revenue share is the least of the problems with Apple News’ subscription. Here’s why.

 
Apple News subscription — fatally flawed

Problem 1: Cannibalization

The most obvious reason Apple News’ subscription will fail is the $10/mth price to access ALL content across many news sites means any individual site that tries to charge more than $10/mth for its content is at a huge disadvantage. After all, why would anyone pay more for less?

So it’s no surprise that The New York Times has not signed on for Apple News given its standard pricing of $15/mth. And neither has The Washington Post ($10/mth), or The Wall Street Journal ($39/mth), though apparently the latter is in talks. Indeed, I heard the same when I spoke to these publishers a few months ago.

If any of the above sign on to Apple News, with the requirement that all their content is accessible, they will bleed customers immediately to Apple given the better deal. And with the 50:50 revenue share (which they have to share with other publishers) their profitability per customer will plunge and will not be made up in volume.

Problem 2: Competing against free

Apple News is no fool so maybe they will relax the constraint to have ALL content. But then it begs the question — which content will they license?

And, furthermore, how does the user know that the content they’ve licensed is worth paying for at all? After all, there is still plenty of free content out there and people are used to searching for free alternatives when they hit a paywall now.

The competition against free content is by far the biggest challenge facing Apple News and one they haven’t tackled at all.

For people to pay for content they have to believe two things:

  1. The content they’re getting is unique and not available for free elsewhere.
  2. The content they’re getting is high-quality.

Consider the TV show Game of Thrones. It’s a great show and because it’s only available on HBO it drives HBO subscriptions more than anything else. Or Stranger Things. Another amazing show that’s only on Netflix. It’s no coincidence Netflix is investing more in such original content.

Unique, high-quality content is what’s needed to drive subscriptions and Apple fails to prove that it has either in its subscription. It can claim quality based on news brands but when most people can’t name an objective news source are news brands a reliable indicator of quality anymore?

Problem 3: Misaligned incentives

The revenue share Apple is implementing will pay out publishers based on content views. That means each publisher is in competition with another to get their piece of the fixed $5/mth revenue share.

Driving more views makes sense when the revenue model is advertising and there is no fixed pie to share. But advertising models lead publishers to put out click-bait headlines and salacious content because that gets the most views. Such generic content is at odds with subscriptions, which as I said above, is driven by unique content. So Apple News will incent more poor quality content and that may be its biggest flaw of all.

Full credit to analyst Ben Thompson for making this point first. He concludes simply:

What Apple did get right

Apple did get one thing right and that’s the importance of subscriptions for news publishers going forward. Indeed, if Apple News with its 90M monthly uniques and a potential base of 900M iPhone users is turning to subscriptions instead of ads then ads as a means of funding the news is truly dead.

News is not going to go away because people will always want to be informed, and often enjoy the mental break that the news provides.

But how the news is funded will change in the coming years and Apple News has shown one way that likely won’t work. We’re building a different way at OwlFactor — one that encourages unique, high-quality content, for $5/mth. Follow this blog to learn when it’s live in a few weeks.

Written by Arjun Moorthy