* Apple to keep 30 pct share of sales within App Store
* Customer can choose to supply information to publishers
* Publishers must offer same terms on website, in store
* Publishers must comply with new rules by June 30
(Adds deadline, New York Times comment)
By Paul Thomasch
NEW YORK, Feb 15 Apple Inc (AAPL.O) is
launching a long-awaited subscription service for magazines,
newspapers, videos and music -- a move that could dent the
fortunes of successful services such as Netflix and Hulu.
Apple's service allows it to keep 30 percent of customer
payments to any publisher with a presence in its App Store,
including blue-chip brands such as The New York Times (NYT.N),
Netflix Inc. (NFLX.O) or Rhapsody, the popular music service.
Publishers can set the price and length of a subscription.
They can also offer subscriptions through their own existing
websites, but would be required to offer those same terms to
anyone signing up through Apple.
In other words, customers who want to sign up for a Netflix
video account would have two choices: They could do so through
the Netflix website, in which case Netflix would keep the full
fee; or they could subscribe through the applications in their
iPhone or iPad, which would cost Netflix 30 percent its fees.
In launching the service, Apple is taking yet another bold
step in securing a major role for itself in the future of
digital media. Until now, Apple has invited media companies
such as Netflix or Hulu, another video service, to create
applications for its devices without taking a financial cut.
Shares of Netflix, which were downgraded on Tuesday by
Morgan Stanley based on valuation, were trading down about 3
percent on Nasdaq. Apple shares were down slightly.
Across the media business, there has long been some concern
about turning over too much power to Apple, with the lessons of
the music industry still fresh in many executives' minds.
Whether Apple's new rules will drive media companies to
concentrate more on developing apps for alternative tablets and
smartphones, such as those powered by Google Inc's (GOOG.O)
less restrictive mobile operating system, remains to be seen.
"This is Apple flexing its muscles and trying to leverage
not just the strength of the iPad and application environment,
but also iTunes payment ecosystem," said Oppenheimer analyst
Yair Reiner. "Over time this risks angering content developers
and application developers and pushing them a bit to find other
Apple will give publishers until June 30 to comply with the
The subscription service is a major break from the previous
practice of "newsstand sales" under which each issue of a
magazine, for instance, would be bought separately. Apple also
takes a cut of sales fee in those cases.
"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," Apple Chief Executive Steve Jobs said in
a prepared statement. Jobs is currently on leave.
Not every media company has as much to lose under Apple's
plan. Newspaper and magazine companies are betting that the
simplicity of Apple's system will help boost flagging sales,
offsetting any losses they may suffer by sharing revenue.
The New York Times currently has a free iPad app in the
iTunes store though it is only a selection of articles and
content. That could change shortly when the newspaper plans to
start charging for some of its content at its flagship site
NYTimes.com and for its apps.
"We are working with Apple to understand how this impacts
our plans, if at all," said New York Times spokeswoman Eileen
For newspaper and magazine companies, one of the main
sticking points in working out agreements for a subscription
service has been the question of customer data. Apple's current
plan will allow customers to decide how much information to
supply publishers when they sign up for subscriptions.
How that information is be used will then be decided by the
publishers -- who are particularly protective of subscriber
data such as names, addresses and credit cards because it helps
them court advertisers and market new products to existing
Magazine and newspaper publishers are working with other
tablet devices and smartphone makers. For instance, Sports
Illustrated, which is published under Time Warner Inc's (TWX.N)
magazine division Time Inc, recently unveiled an "all access"
subscription program for Google's Android-operated tablet
computers and smartphones.
The decision to broadly introduce a subscription service
comes just weeks after Apple teamed up with News Corp NSWA.O
to launch The Daily, which was the first subscription product
available through Apple's iTunes store [ID:nN01120497]
Netflix shares fell $6.99, or 2.8 percent, to $240.57.
Apple's shares fell 30 cents to $358.88.
(Additional reporting by Gabriel Madway in San Francisco and
Jennifer Saba in New York; Editing by Gerald E. McCormick,
Maureen Bavdek, Dave Zimmerman)