Apple is pitching its new subscription service as a savior to journalism, but publishers say its logic is flawed

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Apple is set to launch a new all-you-can-read news subscription service along with other services at a big event next week.
Critics of the plan say while Apple is pitching itself as a savior to the publishing industry with the new service, its logic is flawed.
They say Apple is pointing to Apple Music as evidence of its subscription know-how.
Big news publishers are said to be sitting it out because Apple’s financial and data-sharing terms are seen as unfavorable to them.
Conversely, a publisher that has a small or emerging online subscription business has little to lose by being part of a bundle.

Apple is set to launch a new all-you-can-read news subscription service along with other services at a big event March 25, and it’s causing major angst among some of the biggest publishers, even those that are sitting it out.

The name of the service hasn’t been made public, but it will be a relaunch of Next Issue Media’s news aggregation app Texture, which gives users access to around 200 magazine for a flat fee of $9.99 a month. Apple acquired Texture last March from Condé Nast, Hearst, Meredith, Rogers Media and KKR.

Apple’s pitch to publishers is that it will charge about $10 a month for what will amount to a premium tier of its existing Apple News app that’s baked into Apple mobile devices, according to knowledgeable sources. Apple will share half of the revenue with publishers based on how much time users spend with the given publishers’ content, they said.

The new service will include publications from Texture’s past owners, which were bound by contract to do so. That includes titles like Hearst’s Cosmopolitan and Men’s Health; Meredith’s People; and Condé Nast’s Wired and The New Yorker. The New Yorker is allowed to leave after a certain period of time because it has a significant subscription business on its own, according to a knowledgable source.

With the announcement less than a week away, Apple has been courting the major national newspapers but to date, The New York Times and The Washington Post have not joined, say people close to the situation. The Wall Street Journal is having productive talks with Apple and sees the service as a way to bring its journalism to a much bigger audience, say people familiar with its thinking.

Business Insider talked to a half-dozen publishing execs who are close to the situation. They say Apple is pitching itself as a savior to the publishing industry, but that its logic is flawed.

Apple wouldn’t comment for this story.

Apple is comparing news to music

The critics say Apple is pointing to its success with Apple Music as evidence of its subscription expertise. And it’s true that Apple Music has been a bright spot for Apple. It’s hit 50 million paid subscribers, which puts it behind older rival Spotify’s 96 million, but reportedly it had a slight edge over Spotify in the US by last summer.

“Based on our experiences with Apple Music, we’re very good at running a subscription business,” said one publishing exec, describing how Apple pitched the service. “We know how to build a subscription business, and we’re going to do that for news.”

But the critics say that comparison is flawed. Music, along with entertainment, is inherently different from news. A lot of news articles are interchangeable in a way that music artists or movies aren’t. Plus, most people don’t want 100 magazines; they just want the ones they’re already fans of.

Apple News has 85 million users a month, which sounds like big pool of potential subscribers for publishers to fish from. But research has shown that 1 or 2 percent of a publication’s monthly unique audience will pay for a digital subscription. If you apply that rule of thumb to Apple News, that’s under 2 million subscribers.

“No one wants an all-you-can-eat magazine service,” said one digital publishing exec whose company isn’t participating in Apple’s service. “Magazines are passion points, whereas music, you do want a library.”

Publishers see little financial upside

The other major criticism top subscription publishers lob at the Apple service is that it won’t be a windfall at all. In all, $5 per subscriber per month would be shared across all the publishers. Compare that to the $10 and up per month that top publishers are getting from people who subscribe directly. The New York Times charges $15 a month for digital access while The Wall Street Journal charges $39 and The Washington Post charges $10.

“Taking the 85 million (or even assuming major growth as a result of the new bundle service), if you put those numbers into a subscription funnel, no publisher will see a significant lift in subscribers,” said another publisher who’s sitting out the service.

Among these top publishers, there’s a belief that there’s little in it for them because they see Apple News as something people use when they have a few minutes to kill, so they’re inclined to spend it reading light fare, not the kind of news these publishers charge top dollar for. “People [magazine] should clean up,” the digital exec sniffed.

If they’re wrong, even worse, publishers worry, the app might end up cannibalizing their existing, higher-value subscribers, turning those subscription dollars into pennies.

Publishers have lots of questions

Overall, the app is a sore point for publishers that have felt pushed around by the platform giants that want their content to get users on their platforms, but give back little in the way of revenue and user data. This soreness is exacerbated by the fact that Apple has positioned itself as a good guy versus Google and Facebook when it comes to supporting quality news, with human editors to make sure fake news and misinformation don’t get through.

“There was a perception that Apple was trying to get across that, ‘We feel your pain, and we can be a savior, and we don’t really need the money, so we’re going to kick back most of it to you guys,’" said the digital exec. But the message it sent with its 50-50 split was “tone deaf, big time,” this person said.

Here are other questions and concerns on publishers’ minds:

Data. Reader data is a lifeline for subscription publishers, who use it to retain and sign up new subscribers, but the concern is that Apple won’t give them the information they need.
Visibility. Being part of a bundle will dilute a given brand’s visibility. Publishers will be dependent on Apple News’ team of editors that decides what articles to promote on the app. Will they give additional promotion to publishers that are in the paid tier, ensuring they get seen so they can make money from the service? Will publishers that opt out of the service be relegated to second-class status with Apple?
Existing subs. Apple already lets publishers sell subscriptions to their own publications through Apple News and keep 70% of the revenue in the first year, then 85% in subsequent years. What happens to that sales channel now that Apple is motivated to get people to subscribe to its own bundle? Will direct subscribers drop those subscriptions in favor of the cheaper bundle?
The Android factor. The Texture app on Android devices is expected to go away when Apple launches its own service. What will happen to Texture’s app on (Apple rival) Android devices? Will Apple still have a presence on Android — or will its new app make up for what publishers lose from not having a presence on Android? And can Apple catch up to Android globally, which is where it wants to eventually take the service?
Other services. Will Apple roll the news service into one mega bundle with music and entertainment? Will that improve its chances of selling people into it, to the benefit of publishers?

All these worries aside, even critics of the forthcoming service see some potential benefits. If Apple News users are “older, Middle America women,” as many publishers refer to them broadly, a publication like the Journal has nothing to lose by being part of the bundle because such readers aren’t already likely to be subscribers.

Conversely, a publisher that has a small or emerging online subscription business has little to lose by being part of a bundle. So it might not make sense for the Times, which can charge $15 a month, but it might for Condé Nast’s Allure magazine, which is currently offering a year for $8.

Publications have to provide their full print edition to the service, which means they can count digital subscribers toward their print circulation that they sell advertising against. Apple will let them put additional content behind the paywall, giving them other potential ways to monetize their articles.

The question is whether these benefits are outweighed by the risks.

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