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Eliot Van Buskirk

Eliot Van Buskirk

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With Apple's Content Subscriptions Begins the Era of the Conversion Battle

Posted: 02/15/11 12:29 PM ET

Apple announced on Tuesday that it will start selling subscriptions to music, videos, newspapers, magazines and other forms of content. While stopping short of offering a music subscription itself, as Apple has long been rumored to be planning to do, the company will instead let other companies try to convert the listeners, readers and viewers of free content into paying subscribers.

Apple's subscription system will work in much the same way that app purchases already do, except that customers choose how long they want to subscribe for, rather than simply whether to buy an app. After that, they're billed periodically through their iTunes accounts -- weekly, monthly, quarterly, or whatever, by the content company, through Apple's billing system.

In the case of music, that means on-demand subscriptions like MOG, Rhapsody, Napster and Spotify, and the paid version of interactive radio services such as Last.fm, Pandora and Slacker, can now charge you for a subscription right within iTunes, with the same convenience for you -- and the same loss of revenue for them.

It's all about where you, the consumer, choose to convert from a free experience to a paid subscription.

Apple CEO Steve Jobs explained that Apple will claim 30 percent of revenue from subscriptions originating within the iTunes system (including iOS devices like the iPod Touch, iPhone, and iPad, and possibly Apple TV later this year) :

"Our philosophy is simple -- when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing. All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one-click right in the app. We believe that this innovative subscription service will provide publishers with a brand new opportunity to expand digital access to their content onto the iPad, iPod touch and iPhone, delighting both new and existing subscribers."

As other platforms follow suit (because it's not like content companies could offer prices lower than Apple's even if they wanted to), subscription bounties will be awarded to whatever company convinces a consumer to subscribe to a service, the plot will thicken considerably. Platform owners like Apple, Google, cellphone carriers, television manufacturers, and others will compete to be the first company to convince consumers to convert to a paying subscription.

For example, if you choose to subscribe to MOG or Pandora through the iTunes App Store, Apple will claim 30 percent of that subscription revenue. If you choose to subscribe somewhere else (the company's own website, your television, your Roku/Boxee Box or more likely through Android, Windows Phone 7, Blackberry, and so on), someone else will get it.

Adding up subscriptions to music, magazines, television shows, serial interactive apps, books, and maybe even movies, that's a big pile of money, with some of the world's biggest companies battling for those conversion fees. And unlike the revenue share resulting from a one-time sale, these subscription shares continue for as long as the user subscribes -- potentially years or decades.

For consumers, this should be a good thing because when companies fight, consumers tend to win. And for music and app subscription services, losing 30 percent to Apple could even turn out to be a good deal, given the volume at which the company's customers consume apps and media -- just ask the app developers who have more than happily been paying that bounty already.

The only way this could hurt music fans and other media consumers is through Apple's insistence that companies that sell subscriptions through iTunes charge the same or less there as they do elsewhere.

If, say, Spotify has to increase its subscription price within iTunes in order to tithe Apple 30 percent and still have enough left over to pay labels and publishers, and fund its own operation, it will also have to increase its price by the same margin when selling subscriptions on its own website, essentially raising its price everywhere.

Digital music is already somewhat of a tough sell for consumers. Raising subscription prices by 30 percent across the board may not be what the doctor ordered.

But given Apple's total control over what its "curated computing" iOS devices can run, content companies' only other option is to stay off of the iOS platform completely. Steve Jobs is betting with subscriptions -- as he did with one-time downloads of music and apps -- that content companies need iTunes distribution more than iTunes needs them. And he's probably right.

 
 
 

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