Apple News: Paying dollars for cents

Texture, subscriptions, and the importance of product-market-business fit

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Since acquiring digital newsstand Texture in 2018, Apple had been pretty quiet about its strategic ambitions for Apple News. That is, until last week, when word of its plans for integrating the subscription service into Apple News began to spread. Essentially, Apple will curate a news/magazine bundle, incorporating content by various publishers, for a $10 monthly fee, from which it will take a 50% cut, then pool the revenue balance for pro rata allocation among its publishing partners. From The Verge:

But Apple is apparently running into issues with publishers over how much of that money (rumored to be $10 per month per subscriber) will make its way back to the creators of the content. According to the WSJ, Apple is currently proposing deals in which it would keep half that revenue for itself, while the other half would be divvied up based on how much time users spend reading each publisher’s content. The model is similar in ways to how Spotify has calculated artist payouts in the past based on overall listening times.

Apple’s hefty 50% revenue share — likely a mere trial balloon — has been dutifully picked-apart by public opinion. So haven’t the misincentives inherent in its chosen KPI, a proxy for engagement “based on how much time users spend reading”.

So, while the details of Apple News’ subscription service are likely to change, I’m more interested in its strategy, which is likely here to stay…


Selling pet rocks

Ben Thompson discussed the quid pro quo over at Stratechery:

On the other hand, what are publishers really giving up? Readers going to the Apple News app have already made the decision to not visit a particular publisher’s website directly, and, given that digital content has zero marginal cost, why not support Apple News on the off chance some article hits it big?
[…]
What is happening is Aggregation: Apple News attracts the users, which means publishers are coming onto Apple’s platform on Apple’s terms, which makes Apple News more attractive to users, making publishers ever more reticent to leave even though they aren’t getting much out of the deal.

If this is Aggregation, then it is the weakest form possible. (But that’s not the bone I’m here to pick, especially after a few months’ worth of spilled ink on the matter.) More precisely, it’s not so much that these suppliers/publishers/content aren’t sufficiently commoditized as to be Aggregated, because they very much are and have been; it’s more that strong-form Aggregation means consumers doesn’t have the want or need to pay for access — particularly when it comes to text content like news articles. This framework from “Ditching Uber’s Playbook” explains why:

…occupying the other two quadrants outside of [The Moat Map] just doesn’t make sense: [e.g.] If suppliers are highly commoditized, then 3rd party solutions either exacerbate abundance by adding another layer of redundant fragmentation (increasing deadweight loss) or create products inferior to that of an aggregator[.]

Business strategery and jargon aside, the intuition can be explained by even more basic supply/demand from econ 101: This commodity content supply is abundantly available for free, so why should the scarce side of the balance, consumer demand, pay for access?! They shouldn’t! As such, Apple News’ new subscription is like lipstick on a pig, selling pet rocks, paying dollars for cents.


An editor-of-editors

Well, given deadweight loss from the supply glut in the news marketplace, Apple could cite “curation” as its value proposition. That’s a worthy cause, to be sure, per “Wither the Consumer”:

The killer products and services were once those that procured scarce content for us; the killer apps now are those that filter abundant content for us. [Given oversupply and deadweight loss,] the challenge of the future is personalization that not only separates good content from bad (Discovery), but also facilitates the way we interact with it — from how we extract what’s important within each piece (Consumption), to how we learn from it (Retention), and how we implement it (Collaboration).

Yet, Google News already does this for free! Apple News’ proposed $10 monthly subscription fee is not worth paying for mere access to an editor-of-editors, given that the cost of the next best options — like Google News or Flipboard among many others — is free. Again, paying dollars for what can be had for cents.

(To be clear, since I just summoned a couple of Cupertino’s competitors, this isn’t necessarily the principal-agent problem in which Apple has, in the past, leveraged platform risk to rival one of its App Store 3rd party developers with a disenfranchising proprietary app. With its Texture acquisition and now these subscription overtures, Apple is not exactly exercising “The Power of Defaults” that have been problematic abuse of power evident in prior cases. Rather, an Apple News bundle requires a subscription point-of-sale that at least lets free rivals like Google News and Flipboard continue to compete relatively unobstructed by Apple’s channel conflict, conflict-of-interest, and/or rent seeking — at least vis a vis the App Store.)

The Verge also discussed the implications for Apple News disintermediating partners’ direct to consumer (DTC) access:

Publishers are also concerned they wouldn’t get access to subscriber data with Apple’s news service, depriving companies of the email and credit card information that’s key to marketing efforts, leading to another point of contention.

In that vein, I question whether such news — that’s not differentiated enough or unsubstitutable enough to be a destination with its own DTC relationships — really warrants a subscription fee in the first place. There are a few publishers-of-record who have “huge scale on the supply side” sufficient to warrant a DTC subscription for the convenience of providing a one-stop-shop. To wit, substitute “Apple/Cook” for “Medium/Ev” in this excerpt from “The Four Winds of Modern Media”:

Incumbents like NYT and WaPo have high fixed costs, spread across their massive reach, which is predicated on comprehensiveness. They are one-stop-shops…
In the midst of Medium ramping [to this level of production], why would readers, en masse, be compelled to keep reading Medium when NYT/WaPo are already greater “everything stores”?
Finally, I have to ask, ‘to what end?!’ Is Ev’s mission really to build a monolith in the vision of traditional media?

In other words, for anyone involved, is there a value-added from Apple inserting itself as an additional editor — an editor-of-editors — higher up the stack? If there is, then what’s the quantum of that value-added?


The quality and quantity of value-added

The answer to that second question about the quantum of value added is likely ‘not enough’. While not a perfect analog, “The Prisoner’s Dilemma Wedge” explains why:

  1. Apple is trying to occupy the bottleneck between commoditized upstream suppliers and end-users, but it is not presenting them with a something for nothing proposition (it’s taking a cut from an indeterminate amount of revenue that publishers have to earn in an all new rat-race, whereas Netflix wrote Starz a check that fell straight to the network’s bottom line with no marginal cost and no risk of cannibalization; Spotify is perhaps a better comp due to the structure of its revenue share with producers, but music is a richer medium and suppliers more powerful due to the Big 3 record labels);
  2. Apple is not covering its content acquisition cost by upselling it for a price over and above its suppliers’ own DTC services (again, there’s no CAC, but if anything, it’s charging less than publishers’ DTC offerings then eating away at even more of publishers’ margins with its rev share, whereas Netflix charged almost 5x more than Starz’s DTC offering without taking a lien on the network’s revenue);
  3. Apple is not targeting a subset of niche end-users (its market is the entire population of iPhone users, and even if it were more narrowly focused, a sufficiently small cohort of early adopters probably wouldn’t be worth Apple’s time, a la the Innovator’s Dilemma);
  4. Apple’s solution isn’t unique, so not only will early adopters be unwilling to pay a premium price, but its upstream suppliers will balk at the prospect of revenue cannibalization (again, its $10 pricepoint for the entire bundle is cheaper than almost every single a la carte subscription, which incentivizes DTC subs to switch, so even if Apple grows-the-pie substantially, net new subs in the lower ASP/lower margin Apple News bundle won’t displace the churn out of higher ASP/higher margin a la carte, whereas Netflix’s novel approach to SVOD was priced at a premium and marketed against Blockbuster, not Starz)

Violating one or two of those criteria is almost inevitable, but satisfying none of them is a strategy fail.

Finally, in answering that first question about the quality of Apple’s value-added as a curator, I’m reminded of this observation from “The Content Police”:

The subjective/manual/human/editorial era has been succeeded by the objective/automatic/algorithm/curation era. These are extremes on the spectrum of information dissemination approaches. Perhaps the social web will settle into a happier medium. Maybe it won’t. I guess my point is that solutions need be careful so as not to encourage wading further into one extreme or another. Regardless, as the printing press and the industrial revolution showed us, it’s still Day 1 of this modern renaissance [after] the era from which we’re emerging — wherein our information diets were rationed by a few white men in a few coastal cities.

Apple News, the editor-of-editors, seems like a regression from media’s Renaissance back toward the Bronze Age and further away from the Enlightenment.


Filling Facebook’s void?

Why can’t Apple News try to aggregate enough content to rival The New York Times or Washington Post? Aside from the challenges presented above, the incentives aren’t sufficient to get publisher buy-in, due to opportunity costs. The Four Winds succinctly explains that as follows:

…there’s no room for an intermediary between paying readers and sustaining niche producers.

See “Medium can’t compete against specialized freelancers” for more detail.

Again, this isn’t as much a critique of Aggregation Theory as it is a critique of Apple News’ strategy. I can rationalize the approach were Apple trying to fill-the-void left by Facebook’s most recent retreat from news curation. But, citing this framework for one last time, The Four Winds explained why it’s hard to rival incumbents who already have huge scale on the demand side (i.e. demand aggregators):

As a content junkie, why would I limit myself to Medium’s island when I have the entire universe curated for me by the major aggregators? Google is everything I ask for [pull], and Facebook is everything that asks for me [push]. What else is there?

As described above, the problem is that this opportunity — the void left by Facebook — is best monetized by ads, so even if Apple News has a bit of traction with this new service, competitors will swoop-in to supplant it with a better product-market-business fit.

Nonetheless, it’s fair to assume that Apple News’ subscriptions will post some meaningful numbers to start, thanks to the hype and its carefully-architected narrative. But, that momentum should peter-out when consumers have enough time to evaluate the perception-reality gap in the cost/value analysis of that $10 monthly spend — especially given the next best alternatives available for free.


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