Apple News+ could lead to a massive value destruction for the magazine industry
Apple digital kiosk is a terrible deal for the news industry. No wonder most newspaper publishers won’t join.
1 . The math, from the industry perspective
The usual narrative to defend AppleNews+ is that the huge installed base of a billion iPhone users worldwide will warrant a revenue boost for the publications hosted on the platform. After all, that was Steve Jobs mantra back in 2010:
“I don’t want to see us descend into a nation of bloggers myself. I think we need editorial more than ever.” (…)“What we have to do is figure out a way to get people to start paying for this hard-earned content. (…) Price it aggressively and go for volume.”
As we’ll see later, over the last ten years, publishers have opted for the “aggressive stance” that Jobs defended. It didn’t help much.
To assess the impact of a fully deployed AppleNews+ I did the following calculation.
- In the United States, the magazine industry generates annual revenue of $27B, a loss of more than 40 percent in ten years.
- Divided by 225 million readers of magazines (according to the trade association), the Average Revenue per User (ARPU) amounts to $120 per reader and per year, all sources included.
- The revenue promised by Apple News+ is $9.9 a month => $119 a year. Minus Apple’s 50 percent cut, it gives a net income per reader of $59.
➜ By joining Apple News+, the US magazine industry will lose 50 percent of its revenue per reader.
Of course, we are talking of transfer here: magazine readers who will join Apple News+ will inevitably cancel their subscription to its preferred publication. (I will carefully review my personal subscription portfolio that amounts to $1500/year, although my most expensive subs — digital newspapers — won’t be in Apple News+, for a good reason)…
To put it differently, for each magazine reader switching to Apple News+, the platform would need to recruit one additional subscriber, only to preserve the size of the sector. The real uncertainty here is the ability of Apple to nearly double the number of people paying for a magazine in the United States where most subscriptions are already dirt cheap (only 13 percent of the magazines’ circulation revenue come from digital).
Which brings us to point N° 2:
2 . The publisher’s perspective
Let’s take a hypothetical serious magazine reader who subscribed to a bunch of publications who pays the publisher’s official price for a digital subscription, without any discount or trial offers. We don’t know how Apple News+ intends to distribute the subscription revenue. So let’s assume the platform will go for a revenue distribution based on the time spent per reader on a given publication. (Distributing revenue on the basis of the number of articles read wouldn’t make any sense given the difference in article length between the New Yorker and People Magazine, for instance).
It will come to this:
These publications will have to split Apple’s meager net ARPU of $59 as opposed to a rate card of $227. They will collectively lose $168, a 74% evaporation of value for being on Apple news+.
Then, the pro-rata kiss of death sets in. If Apple chooses to distribute the revenue based on reading time, an expensive publication such as the New Yorker ($100 a year) will lose 88 percent of its revenue, even if the reader of this hypothetical bundle allocates 20 percent of their time on it. By comparison, Wired, which can afford to be ultra cheap because it carries a much heavier advertising load, will lose only 12 percent of its revenue assuming a reader spends 15 percent of their time on it. The pricier the rate card, the higher the loss.
Regardless of the distribution, it is a miserable zero-sum game — or rather a $59 a year lousy game — for the publishers.
One justification to join Apple News+ is the often-heard rationale “It is just another channel, publishers should take advantage of it”. It could make sense if the publisher were able to retain the relationship with the customer. For obvious reasons, that won’t be the case in the Apple News+ ecosystem. Apple will own the relationship. Publishers who will lose three-quarters of their revenue by joining Apple News+, won’t be able to develop or upsell anything directly to their customers, based on their profile, propensity to pay, etc. As for “the other channel,” it is a blind one for news brands that won’t even be able to get incremental revenue for their current business.
frederic.filloux@mondaynote.com
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