Apple's Effect on Content Partners: More Good Than Bad

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Most analysts expect The New York Times, which has said it plans to charge frequent visitors to its Web site an unspecified price for access, to also develop a paid iPad app. Publishers could use Apple apps to charge for a single issue, say 99¢, or for a yearlong subscription.

Apple is also developing an advertising business that could end up benefiting publishers, according to three people familiar with the company. The company is working on technologies that would let publishers create more entertaining and useful ads for the iPhone and other Apple devices. With its acquisition of Quattro Wireless earlier this month, it also hopes to deliver ads relevant to what an iPad user is doing at the moment, whether it's looking for restaurant reviews or playing video games. "The challenge for Apple is to make ads that are so cool that they make all other ads look like the tired clichés people think they are," says Gartner's McGuire. "That could be what happens here." Jobs, asked about his plans for advertising after his keynote, declined to comment.

The Importance of Scale

Scale will be important to Apple's success. Roger Fidler, program director for digital publishing at the Donald W. Reynolds Journalism Institute, says advertisers are unlikely to be interested in the tablet until a publication has 100,000 or more subscribers. "Nobody expects the tablet to take off as fast as the iPod or iPhone," says Fidler, who has been working on digital newspaper technologies since the late 1970s. "But Apple never thinks small." Analyst Gene Munster of Piper Jaffray (PJC) predicts Apple will sell 3 million to 4 million of the devices in the first year.

Fidler says the economics of Apple's model could prove far superior to the existing alternatives. A New York Times subscription now runs $13.99 a month on the Kindle from Amazon, which typically keeps 70% of the revenue in such deals, Fidler says. Under that scenario, the newspaper receives just $4.20. Apple, however, takes 30% of the revenue from iPhone app sales. If Apple takes the same percentage of iPad apps, that would mean $9.79 for the Times. Fidler also believes newspapers could charge as much as 50% more for iPad subscriptions since the device can be used to play video clips and search databases of local restaurants or winter vacation suggestions. "For publishers, today was a good day," Fidler says. Amazon spokesman Drew Herdener declined to comment on its revenue splits with publishers.

Still, Apple's partners have to be wary. There is a long list of companies that teamed up with the company only to be burned later. Chipmaker PortalPlayer saw its stock tumble and sold itself to a rival, after Apple dropped the company as a supplier for the iPod in 2006. Motorola (MOT) teamed up with Apple to develop a Motorola-branded phone that could link to iTunes, only to see Apple give the phone little support and then use the experience to develop its own iPhone.

Better Partnership Possible

Apple can also lose interest in partners once the initial excitement over a project fades. One gripe among music executives is that the pace of innovation has slowed as Jobs has focused elsewhere. For example, Apple has yet to offer a streaming music service to go along with its buy-to-own downloads, despite the growing popularity of free online offerings such as Pandora and Spotify. "Music was the star child for a while, but then came its sexier sibling, video," says Arnold. "Then came the App Store, and now music is back in the third row."

Apple's experience in the music business may have made it a better partner for other kinds of companies, however. After years of resisting record industry pressure to modify its 99¢ pricing, the company agreed to let labels price songs from 69¢ to $1.29. It also let them drop anti-piracy technology that prevented music sold on iTunes from being played on non–Apple devices. The moves haven't hurt Apple's iPod business, while giving music executives more control and flexibility. Still, Apple has struggled to sell movies and television shows through iTunes, in part because it wouldn't give the studios much leeway in the pricing and timing of releases. "That has been a humbling experience for them, and that humility is going to help them play in [publishing and] other markets," says Munster.

Burrows is a senior writer for Bloomberg BusinessWeek, based in San Francisco.

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