The iPad 2: lipstick on a pig

Apple’s new subscriptions policy takes the lustre off launch.

As Apple gathered its fans to a convention centre in San Francisco last night to announce its latest wares - including a thinner, lighter, camera-touting iPad 2 - away from the razzmatazz a row is growing about Apple's latest attempt to screw even more profit from media, music and other content publishers.

The brouhaha centres on Apple's App Store, an online archive of applications from which users can download apps to their iPhones and iPads. In mid-February, Apple quietly announced a new App Store subscription model, designed to further line its already-bulging pockets.

The new subscription model stipulates that from 1 June, any publisher of content in the App Store that wishes to sell subscriptions to that content must pay Apple 30 per cent of the subscription revenue. That includes publishers of newspapers, magazines, even music and video. Thirty per cent.

But Apple went further. It announced that it will not allow publishers to charge more for a subscription in the App Store than it charges punters directly, via their own websites for example. It also won't let publishers put a link to an external subscription page in their applications available in the App Store, in an attempt to bypass the "Apple tax".

Frustratingly for publishers, but undoubtedly actually in consumers' interest, Apple also said that customers subscribing via iTunes and the App Store must opt in to sharing their data with the publishers, potentially denying publishers a lucrative source of information about their subscribers they can use for marketing and tailored advertising.

Break any of these rules, and Apple will simply kick the publication out of its App Store. Apple defended all of these moves by saying that its new subscription technology that links iTunes (where 200 million people already have their credit card details stored) to applications running on the iPhone or iPad will take the hassle out of subscriptions for customers, and this will in turn drive more subscribers to publishers' products. In the words of Apple CEO Steve Jobs:

"Our philosophy is simple-when Apple brings a new subscriber to the app, Apple earns a 30 per cent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 per cent 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. We believe that this innovative subscription service will provide publishers with a brand new opportunity to expand digital access to their content onto the iPad, iPod touch and iPhone, delighting both new and existing subscribers."

Unfair play

First to cry foul play were subscription-based music services such as We7, Last.fm and Rhapsody, who said their margins are already far too thin for them to afford to give Apple 30 per cent of subscriptions just for letting them put their application in the App Store. We7's CEO and founder Steve Purdham said that Apple's subscription model was "economically unviable", while Last.fm co-founder Richard Jones stormed: "Apple just fucked over online music subs for the iPhone."

Rhapsody said in a statement that, "An Apple-imposed arrangement that requires us to pay 30 per cent of our revenue to Apple, in addition to content fees that we pay to the music labels, publishers and artists, is economically untenable. The bottom line is: we would not be able to offer our service through the iTunes store if subjected to Apple's 30 per cent monthly fee vs a typical 2.5 per cent credit card fee."

The objections from subscription-based music services like Rhapsody are particularly noteworthy: Apple doesn't currently have a rival offering in the space but after its acquisition of music streamer Lala last year, it's widely rumoured to be about to enter the throng. Making life tough for the music streamers, who survive on particularly slim margins, makes good business sense for Apple if those rumours are true.

The chief executive of Pearson, the publisher of the Financial Times, said on Monday that it may pull the FT out of Apple's ecosystem if it refuses to give up customer information. "It is unclear how their proposal is going to work, we are still talking to them," said Marjorie Scardino. "The important thing to remember is there are many, many tablets coming out and multiple devices ... [from] Kindle to mobiles. If indeed Apple are not happy to give us customer data then maybe we will get it somewhere else."

Natural monopolist

So what's really going on here? The incredible success of Apple's iPhone and then iPad mean that Apple has become a natural monopolist in the distribution of applications and content for the biggest-selling smart, non-PC devices. It's sold over 16 million iPads and 100 million iPhones. It's in an enviable position, and it knows it.

As the launch of News Corp's iPad-only newspaper The Daily in February demonstrated, news organisations know they must tap into this potential audience, not least because other ways of getting readers to pay for content online have had little success. In other words, publishers are desperate. Desperate enough, Apple reckons, to give up a whopping chunk of their subscription revenue for the "honour" of being in the App Store.

Apple's attitude seems to be that the publishers have little option but to play in its sandpit, so it can charge them pretty much whatever it likes. But with Apple already making record sales and profits - it made $6bn profit on $27bn in sales in its latest financial quarter - that 30 per cent and the other restrictions are hard for publishers to swallow.

It's little wonder that if the Wall Street Journal is to be believed, the Justice Department and Federal Trade Commission are "looking at" Apple's new rules for possible antitrust violations. At the heart of the issue isn't the 30 per cent fee but that requirement that in-app subscriptions have the same price as offers outside the app.

Rhapsody has said that, "We will continue to allow consumers to sign up at www.rhapsody.com from a smartphone or any other internet access point, including the Safari browser on the iPhone and iPad. In the meantime, we will be collaborating with our market peers in determining an appropriate legal and business response to this latest development."

If Apple sticks to its guns, and there seems little likelihood of it changing its mind, it's possible that quite a few publishers will have no option but to abandon the Apple ecosystem. If they can't afford the 30 per cent levy they can't put up prices without putting them up across the board, and that is sure to make them look expensive compared to rivals who may or may not be in the Apple fold.

Of course they do have alternatives: Google has an application store for its Android smartphone devices and it's said it will only charge publishers 10 per cent of subscriptions. That could suddenly make the Android platform rather attractive to publishers, though they are of course mindful that Android trails Apple's iOS operating system by market share.

As of September 2010 Apple had 56 per cent mobile web consumption market share with iOS, compared to 25 per cent for Google's Android, according to Quantcast. But Android was shown to be gaining ground on iOS, according to the figures, and this news may give it another shot in the arm.

As for consumers, many will be unaware of the terms Apple is enforcing on content providers, and those who do may care less. But if some of their favourite content providers start to boycott their beloved iPads they may just find tablets from the competition like Motorola, Samsung, HTC or HP that bit more attractive. So all in all Apple's news looks like it could be something of an own goal, and one that should be getting more attention than their latest shiny gadget.

 

Jason Stamper is NS technology correspondent and editor of Computer Business Review.

Jason Stamper is editor of Computer Business Review

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Tony Blair might be a toxic figure - but his influence endures

Politicians at home and abroad are borrowing from the former prime minister's playbook. 

On 24 May at Methodist Central Hall, Westminster, a short distance from where he once governed, Tony Blair resurfaced for a public discussion. Having arrived on an overnight flight, he looked drawn and puffy-eyed but soon warmed to his theme: a robust defence of liberal globalisation. He admitted, however, to bafflement at recent events in the world. "I thought I was pretty good at politics. But I look at politics today and I’m not sure I understand it."

Blair lost power in the summer of 2007. In the ensuing nine years, he lost reputation. His business ventures and alliances with autocrats have made him a pariah among both the public and his party. A YouGov poll published last year found that 61 per cent of voters regarded Blair as an electoral liability, while just 14 per cent viewed him as an asset. In contrast, John Major, whom he defeated by a landslide in 1997, had a neutral net rating of zero. It is ever harder to recall that Blair won not one general election (he is the only living Labour leader to have done so) but three.

His standing is likely to diminish further when the Iraq inquiry report is published on 6 July. Advance leaks to the Sunday Times suggest that he will be censured for allegedly guaranteeing British military support to the US a year before the invasion. Few minds on either side will be changed by the 2.6 million-word document. Yet its publication will help enshrine Iraq as the defining feature of a legacy that also includes the minimum wage, tax credits, Sure Start, devolution and civil partnerships.

Former leaders can ordinarily rely on their parties to act as a last line of defence. In Blair’s case, however, much of the greatest opprobrium comes from his own side. Jeremy Corbyn inclines to the view that Iraq was not merely a blunder but a crime. In last year’s Labour leadership election, Liz Kendall, the most Blair-esque candidate, was rewarded with 4.5 per cent of the vote. The former prime minister’s imprimatur has become the political equivalent of the black spot.

Yet outside of the Labour leadership, Blairism endures in notable and often surprising forms. Sadiq Khan won the party’s London mayoral selection by running to the left of Tessa Jowell, one of Tony Blair’s closest allies. But his successful campaign against Zac Goldsmith drew lessons from Blair’s election triumphs. Khan relentlessly presented himself as “pro-business” and reached out beyond Labour’s core vote. After his victory, he was liberated to use the B-word, contrasting what “Tony Blair did [in opposition]” with Corbyn’s approach.

In their defence of the UK’s EU membership, David Cameron and George Osborne have deployed arguments once advanced by New Labour. The strategically minded Chancellor has forged an unlikely friendship with his former nemesis Peter Mandelson. In the domestic sphere, through equal marriage, the National Living Wage and the 0.7 per cent overseas aid target, the Conservatives have built on, rather than dismantled, significant Labour achievements."They just swallowed the entire manual," Mandelson declared at a recent King’s College seminar. "They didn’t just read the executive summary, they are following the whole thing to the letter."

Among SNP supporters, "Blairite" is the pejorative of choice. But the parallels between their party and New Labour are more suggestive than they would wish. Like Blair, Alex Salmond and Nicola Sturgeon have avoided income tax rises in order to retain the support of middle-class Scottish conservatives. In a speech last August on education, Sturgeon echoed the Blairite mantra that "what matters is what works".

Beyond British shores, political leaders are similarly inspired by Blair – and less reticent about acknowledging as much. Matteo Renzi, the 41-year-old centre-left Italian prime minister, is a long-standing admirer. "I adore one of his sayings,” he remarked in 2013. “I love all the traditions of my party, except one: that of losing elections."

In France, the reform-minded prime minister, Manuel Valls, and the minister of economy, Emmanuel Macron, are also self-described Blairites. Macron, who in April launched his own political movement, En Marche!, will shortly decide whether to challenge for the presidency next year. When he was compared to Blair by the TV presenter Andrew Marr, his response reflected the former prime minister’s diminished domestic reputation: “I don’t know if, in your mouth, that is a promise or a threat.”

The continuing attraction of Blair’s “third way” to European politicians reflects the failure of the project’s social-democratic critics to construct an alternative. Those who have sought to do so have struggled both in office (François Hollande) and out of it (Ed Miliband). The left is increasingly polarised between reformers and radicals (Corbyn, Syriza, Podemos), with those in between straining for relevance.

Despite his long absences from Britain, Blair’s friends say that he remains immersed in the intricacies of Labour politics. He has privately warned MPs that any attempt to keep Corbyn off the ballot in the event of a leadership challenge would be overruled by the National Executive Committee. At Methodist Central Hall, he said of Corbyn’s supporters: “It’s clear they can take over a political party. What’s not clear to me is whether they can take over a country.”

It was Blair’s insufficient devotion to the former task that enabled the revival of the left. As Alastair Campbell recently acknowledged: “We failed to develop talent, failed to cement organisational and cultural change in the party and failed to secure our legacy.” Rather than effecting a permanent realignment, as the right of the party hoped and the left feared, New Labour failed to outlive its creators.

It instead endures in a fragmented form as politicians at home and abroad co-opt its defining features: its pro-business pragmatism, its big-tent electoralism, its presentational nous. Some of Corbyn’s ­allies privately fear that Labour will one day re-embrace Blairism. But its new adherents would never dare to use that name.

George Eaton is political editor of the New Statesman.

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad