The Basics Behind Apple’s New Subscription Payments System

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Apple has officially opened its new subscription payment service up to publishers today. Here’s how everything shakes out.

How does this affect you?

Unless you’re a publisher that wants to sell “content-based apps” in Apple’s App Store, it doesn’t affect you all that much. You’ll probably start to notice more newspapers and magazines available as apps and when you initiate the purchase of one of them, you’ll be presented with several different payment options: weekly, monthly, bi-monthly, quarterly, bi-yearly or yearly.

You may have the option of providing personal information such as your name, e-mail address and zip code when you subscribe to a particular publication, though “the use of such information will be governed by the publisher’s privacy policy rather than Apple’s.”

You’ll also be able to manage and cancel your subscriptions from your personal account page inside the App Store.

How does this affect publishers?

Interestingly, it’s not quite as onerous as it previously appeared. A group of European publishers, especially, raised concerns about Apple’s apparent requirement that subscriptions be sold through the App Store with a 30% cut of every sale going to Apple.

Apple’s 30% cut is still a factor, but publishers won’t be required to sell subscriptions solely through the App Store after all. The company’s press release contains the following quote from Steve Jobs, himself:

“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.”

It sounds like anyone who stumbles across a content-based app while browsing around in the App Store would be considered as referred by Apple, whereas a direct link to the app from the publisher’s web page or similar property would be considered as referred by the publisher.

It’d be interesting to know how Apple would perceive a direct link to the app that originated from a completely neutral source. It wouldn’t technically be a link from the publisher, but it wouldn’t be a referral from Apple either.

Apple handles all the payments for purchases made inside the app and provides the App Store’s infrastructure, which helps it justify taking a cut, but publishers have alternative options to help them avoid sharing with Apple. Certain publishers had also raised concerns about the ability to bundle free electronic editions of newspapers or magazines with paid paper-based subscriptions. Those issue have been addressed by Apple as follows:

“Publishers who use Apple’s subscription service in their app can also leverage other methods for acquiring digital subscribers outside of the app. For example, publishers can sell digital subscriptions on their web sites, or can choose to provide free access to existing subscribers. Since Apple is not involved in these transactions, there is no revenue sharing or exchange of customer information with Apple. Publishers must provide their own authentication process inside the app for subscribers that have signed up outside of the app.”

So Apple is allowing money to change hands outside of the app, which is good for publishers. However, it’s requiring that any time access to an app that’s located in the App Store is sold outside of iTunes, the publisher has to offer the same deal inside the app as well.

That means Apple has a shot at the 30% cut, depending upon how the customer gets referred. And Apple’s not allowing publishers to hand off would-be subscribers to the publications’ websites from inside the app:

“Apple does require that if a publisher chooses to sell a digital subscription separately outside of the app, that same subscription offer must be made available, at the same price or less, to customers who wish to subscribe from within the app. In addition, publishers may no longer provide links in their apps (to a web site, for example) which allow the customer to purchase content or subscriptions outside of the app.”

Basically, expect a whole lot of promotion to happen on the publishers’ websites. It’s not likely that many of them will be pushing to be the featured app inside iTunes, since that’d mean a 30% commission for Apple.

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