Apple's luxury tax should spark a showdown with publishers - but will it?

Apple's luxury tax should spark a showdown with publishers - but will it?

Summary: Just as all of the big content providers were starting to get chummy with Apple and its media savior - the mighty iPad - ol’ Steve Jobs went and pulled a fast one on his new publisher buddies.He changed the rules of the game and hit them with a new revenue-sharing structure that essentially forces publishers who charge subscriptions outside of the app to either cough up a 30 percent tax on subscriptions purchased from inside the app or do business elsewhere.

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Just as all of the big content providers were starting to get chummy with Apple and its media savior - the mighty iPad - ol’ Steve Jobs went and pulled a fast one on his new publisher buddies.

He changed the rules of the game and hit them with a new revenue-sharing structure that essentially forces publishers who charge subscriptions outside of the app to either cough up a 30 percent tax on subscriptions purchased from inside the app or do business elsewhere.

And just as anyone could have guessed, the cries of “antitrust” have already begun - even though that argument won’t stand a chance once everyone remembers that a flood of tablets are about to hit the market.

You see, while publishers may want to cry foul over having to pay such a high premium, they really can’t. Plain and simple, Apple is charging the equivalent of a luxury tax, a premium that a publisher must pay for the privilege of conducting business in Apple’s neighborhood, just as luxury retailers pay a premium for a storefront presence along New York’s Fifth Avenue or Beverly Hills’ Rodeo Drive.

If they don’t like the new rules, of course, they don’t have to play by them. They can always pull the app out of Apple’s neighborhood and continue to charge a subscription through a browser transaction that they control (including the customer information, valuable data that Apple also controls under its rules.) Not everyone has to have a Fifth Avenue presence, even though that’s where tens of millions of people are reading, shopping, playing and otherwise “iPad”ing.

Or do they?

Certainly, any publisher that’s looking broaden its reach - and which ones aren’t - has an iPad strategy. But, as Larry Dignan suggested in a post yesterday, it may be time for the big players who would be hardest hit - folks like Netflix, the New York Times, Hulu, Sirius XM and others - to take a stand and pull their iPad apps in protest.

In essence, they’d be calling out Steve Jobs, publicly reminding him that those 60,000 apps don’t mean squat if the iPad doesn’t have the biggest and most popular apps. Apple could, of course, counter back with a “dumping Flash didn’t seem to hurt sales” argument or even just a quick “you need us more than we need you” jab to remind the publishers who’s holding the cards.

But here’s a thought: If Apple loses some big-named apps over this latest change of the rules, then how long will iPad owners continue to tolerate a compromised experience - all in the name of Apple’s personal business battles? They’ve already accepted that anything Flash isn’t going to play. What’s next? A big publication? E-books? Streaming music? At some point, even those who line up by the millions to buy the latest and greatest from Apple will start to wonder why their iPad can’t do this or can’t do that.

At this point, it’s a question worth pondering, but not one that Apple should be losing sleep over. The iPad will continue to do well, breaking sales records and making more money for the shareholders. In this game of chicken, Apple still has the upper hand.

For now.

Topics: Enterprise Software, Apple, Banking, Browser, Government, Government US, iPad, Mobility

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  • Totally Reasonable Business Model

    I thought about this a lot and my initial reaction was... EVIL! However, after giving it further thought I have come to the decision that this is a perfectly sensible business model. If you set up shop in a mall, then you need to pay the rent, and that's all that Apple is doing here - collecting the rent and then some.

    Let's face it, 30% is a lot to give away, but developers have been doing it all this time and nobody makes a big deal. Then media companies come along and they're subjected to the same rules and all of the sudden it's a big deal!?

    This is a capitalistic world we live in. It's a world where if you can't afford it, you either steal it or do without it. Media companies have this attitude of we'll charge you for our platform (ads), but we don't want to pay for your platform. If you can't afford to pay Apple or simply don't want to then go somewhere else - stop complaining!
    General C#
    • Your analogy is wrong

      @General C# The difference is that malls don't charge their tenants a per sale commission on items sold. Whether your store sells 2 items or 10 000 you still pay one rental price.
      garethmcc
      • Substitute "store" for mall and the analogy works

        @garethmcc

        Apple is a store, not a mall. Content providers don't rent space, they sell through Apple using Apple's storefront, shelves, and cash register. Apple has ultimate say in what's on the shelf, how much it costs, and how much is paid for the product.
        terry flores
      • but malls charge rent right?

        @garethmcc are any of these guys paying any rent.. NO.. they aren't.. they are squatting for free.

        they give away their app for free so no revenue for apple for that, they do their transactions on their websites so not revenue for that.. all the revenue that apple gets from these SQUATTERS is $99 for a dev license.. $99 measly dollars is all these guys want to pay to make millions selling from using apple's store.. does that seem fair to you?

        you are right that malls don't take a cut of the stores take but they do collect rent.. these guys don't want to pay rent, they don't want to pay anything.. they just want to set up a little stand in the middle of apple's store with a sign that says.. here's what we have to offer.. come to our store down the road.. that is completely ridiculous.. would amazon allow apple to sell its book, music an movies in its store?? are you mad? that would never happen in a million years...

        the bottom line is that these guys are using apple store front for free.. apple is saying.. look pedling your wares in store has some intrinsic value.. you're going to have to pay something to be here..
        doctorSpoc
      • RE: Apple's luxury tax should spark a showdown with publishers - but will it?

        @doctorSpoc
        No, these places aren't giving away the app for free. Yes, it's free to you, because the provider (Amazon, Hulu, et al) has paid the app purchase fee to Apple on your behalf. That's why Apple doesn't charge you anything - they bill the app "owners" for the number of apps "sold" that month. If you had a "free" app, and 100 people downloaded it, and the going rate is $1.99 per app, at the end of the day Apple will send YOU the bill for $199. Just so that your customers get your app for "free." That's how "free" works - somebody, somewhere has paid for it - just not you.
        reziol
      • RE: Apple's luxury tax should spark a showdown with publishers - but will it?

        @garethmcc Sorry, they do. Check.
        minardi
      • RE: Apple's luxury tax should spark a showdown with publishers - but will it?

        @doctorSpoc

        If the above posts are true, then I cry "foul" on Apple. If my business is to sell content, not apps, then why should I pay Apple commission on my content?

        Since I cannot install my content delivery system on an Apple device without going through the Apple store, I have no other option. If I pay Apple for that right, by giving away a free App, then I've already paid for that service, even though it was forced upon me.

        The consumer already paid for the device, and they're paying me for the content. Where in any of that is Apple giving anyone a value add for content delivery that is worth a 30% cut?

        Sorry, no thanks.
        denderick
      • Your knowledge of retail leases is lacking

        @garethmcc You need to familiarize yourself with the Percentage Lease, in which a store's rent is partially or wholly determined as a percentage of its retail sales. These are pretty common in shopping centers and malls, as a store's success often hinges on the traffic that the property generates as a whole.
        NameRedacted
      • Nope, Malls charge you by a gross % of your sales

        @garethmcc "Whether your store sells 2 items or 10 000 you still pay one rental price."

        Pretty sure all malls charge a % of your gross sales. If you want a fixed rent you have to go to a strip mall.
        gallee
      • RE: Apple's luxury tax should spark a showdown with publishers - but will it?

        @garethmcc your sort of right .. and wrong at the same time ..
        They are not using a mall but more of a grocery store . a great example would be the chip isle each vender (ruffles , lays etc. ) get x ammount of shelf space to show their wares ... a percentage of those sales goes to the shop while the rest goes to the orignal vending company .. so the more they sell the more they pay say .. well tescos in the UK , say President's choice in Canada, or Publix in the states ..
        jstevens4
      • RE: Apple's luxury tax should spark a showdown with publishers - but will it?

        @garethmcc

        That's not always the case. Some landlords do draw a percentage of sales as part of lease agreements.
        will.todd
      • Really?

        @reziol<br>Where did you get the idea that Apple charges developers for each sale of a free app?
        rynning
      • RE: Apple's luxury tax should spark a showdown with publishers - but will it?

        @garethmcc
        I'm going to have to assume that you have not run a retail premise in a mall. It's pretty damn common for mall premises to require that retailers pay a portion of sales (I've seen 2 to 15%) in addition to rent. The other alternative is a guaranteed minimum rent vs. a percentage of sales -- that is if your sales percentage is lower than the minimum rent, you pay the minimum rent otherwise you pay the percentage of your sales. Then add the maintenance fees, parking lot and anything else the mall management decides to offload.

        American malls may be different from Canadian but I wouldn't bet anything more than jellybean money on American malls not following the same pattern.
        DNSB
      • RE: Apple's luxury tax should spark a showdown with publishers - but will it?

        @garethmcc Malls don't charge you to shop there, as with Apple you have to pay big money to own the (mall). Stores pay rent but make sales off of the people who visit the mall for free. In essence Apple gets to charge for entering the mall, and also charges the set up of the store ($99) and rent on each transaction to those doing business in the mall!
        SmokinBiz
      • RE: Apple's luxury tax should spark a showdown with publishers - but will it?

        @garethmcc
        Now I am confused; as I understand Apple's tactics, the analogy would be that a mall charged a percentage for every store in the world, not just the one in the mall. Isn't Apple insisting on a cut of sales outside of Apple's store?
        d.j.elliott@...
      • RE: Apple's luxury tax should spark a showdown with publishers - but will it?

        That's not true. Most mall commercial leases include percentage rent for any sales over a preset amount. You pay your base rent, and if you are successful, the mall gets its cut. However, not close to 39%.
        mikeaaaaaa9
      • RE: Apple's luxury tax should spark a showdown with publishers - but will it?

        @garethmcc

        Actually most malls charge a rent per square foot leased and an override on sales.
        RILIB
      • not so...

        @garethmcc the normal rental in malls and now a lot of stand alone spots DO charge a 'per sale commission on items sold'; well, actually it's called 'percentage of monthly gross'; in other words there is a basic rent and then there is an amount added by how much the store made the month before and not on net but gross!
        J Michael Ireland
      • RE: Apple's luxury tax should spark a showdown with publishers - but will it?

        @garethmcc MasterCard doesn't. You pay a % of sales.
        His_Shadow
      • RE: Apple's luxury tax should spark a showdown with publishers - but will it?

        @garethmcc - mall rents include a percentage of gross sales
        inkwell