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Cable Technology Feature Article

September 21, 2010

Apple's New Content Subscription Service makes it "Cable"

By Gary Kim, Contributing Editor

Apple (News - Alert) could announce a "printed content" subscription offering over the next month or two, the Wall Street Journal reports. The move is not unexpected, given Apple's move into a distributor role for software, music, television shows, movies and books. 

Though Apple continues to be a company that makes its money selling hardware, it is gradually acquiring quite a high profile in the content distribution business, assuming a role that in the past has been played by radio and TV broadcasters, and more recently, by cable, telco and satellite video distributors. 

What is noteworthy, though, is that Apple actually makes it money on hardware sales, not sales of content as such, or even advertising. That poses a clear danger to content firms that rely on actual content sales and advertising for their revenue models.

The reason is simple: companies always are at risk of disruption when competitors give away or "merchandise" what other companies sell. 

Apple will be content to cover its costs in content sales or advertising simply to grow the market for its hardware. Content companies will have no choice but to make money directly from content sales and advertising. Which business model would you rather have?

It isn't simply a matter of a "multiple-revenue" or "dual-revenue stream." The key issue is that Apple does not actually need to make a sizable profit on content sales and advertising to grow its business; content companies must do so. When one company can afford to give away or discount a product another company must sell for healthy profit margins, there's always a chance for ecosystem conflict. 

Still, print content companies might feel they have no choice but to participate in some way. Subscriptions represent seven of every ten newspapers and magazines sold in the United States, to give you some idea of the relative importance a la carte or on-demand sales have, compared to subscriptions. Apple is said to be asking for 30 percent of the gross retail sales price of the subscriptions, in line with its other endeavors. 

As with Apple's efforts in the music distribution space, there are, and will be, tensions between the ecosystem partners about revenue splits, access to customer data and control over the channel. Some publishers say the ability to peddle their wares to the 160 million Apple account holders outweigh any loss of control in working with Apple.

Apple has talked to publishers including Time Warner, Condé Nast, News Corp (News - Alert). and Hearst Corp.'s newspaper and magazine divisions about selling subscriptions through an Apple system, according to the Wall Street Journal.

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.