Apple rolls out digital subscription service

By @ibtimes on

Apple Inc 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, Netflix Inc. 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 to create applications for the iPhone and iPad without taking a financial stake.

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.

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 solutions.

It was not immediately clear when all publishers must comply with Apple's new rules.

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 keeps 30 percent of the sales fee in those cases.

Publishers are betting that the simplicity of Apple's system will help boost sales, offsetting any losses they may suffer by sharing revenue.

But for months, publishers debated whether Apple's policy would put them at the mercy of one of the most powerful technology companies in the world -- placing them in the same uncomfortable position as music companies. For example, they will be barred from putting links to their own websites within the apps.

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.

What to do with customer data has been one of the main sticking points in working out agreements for a subscription service. The 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 readers.

The decision to broadly introduce a subscription service comes just weeks after Apple teamed up with News Corp to launch The Daily, which was the first subscription product available through Apple's iTunes store [ID:nN01120497]

At the launch of The Daily earlier this month, Apple hinted that the company would soon make an announcement on subscription services for other publishers.

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)

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