Apple Loses on Subscription Plans? Don't Bet on It

Publishers had fallen over themselves to hail the iPad as their savior -- at least until last February, when Apple (AAPL) said that it wanted a 30 percent revenue cut of all subscriptions the companies sold through iTunes.

And then, without fanfare, Apple abruptly changed its in-app subscription plans, as MacRumors reported yesterday. Was it utter capitulation by Steve Jobs? Nope. Apple is one of the shrewdest negotiators in high tech, and it was setting up the conditions for further negotiations. This isn't over by a long shot.

Apple wants its pound of cash
The problem for the publishers, as well as such media streaming companies as Netflix (NFLX) and Pandora, was that their business models called for enticing customers with, say, ad-supported material or single paid issues, in order to get them used to their services. Then they'd try to convert the people into long-term spenders.

But Apple wanted its share:

"Our philosophy is simple--when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing," said Steve Jobs, Apple's CEO. "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."

Or more than its share, if you asked the content companies. If people came in through an iPhone or iPad and wanted a subscription, then the companies would not only give up 30 percent of their revenue, but also all the personal information of those customers, which Apple kept. It wouldn't even be possible to email consumers to renew a subscription and start getting all the revenue.

The companies were fuming -- and it was apparently enough for Apple to modify its plans. Now, so long as the companies don't have a "buy" button in their apps, they can direct customers to their own web sites for a purchase, and prices can be better than those in iTunes.

If at first you don't succeed...
However, Apple hasn't given in any more than it did when Jobs kept trying to sell music by the Beatles through iTunes and kept hearing "No!"

When developers complained about not being able to use cross-platform development tools, Apple eventually gave in. But this is different. Apple has chosen the battleground for future rounds of negotiation by forbidding a buy button in apps for outside subscription sales, forcing consumers to purchase in inconvenient way.

When Apple first started iTunes, the labels would only give it the ability to sell digital music if Jobs agreed to digital rights management and limited the service to Macs. They wanted to see how the service did while protecting themselves from possible piracy. And that's what Apple did. Six months later, it got to expand iTunes to Windows machines. Six years later, bye-bye DRM.

Google (GOOG) would have insisted on getting everything and walked away empty handed. Microsoft (MSFT) did nothing for years, utterly losing an important market. Apple took what it could get, figuring that changing circumstances would let it revisit the deal. To put it differently, negotiations are never over so long as a deal is in play.

As Peter Kafka at All Things Digital pointed out, this was anything but a white flag on Apple's part:

Now, apps can offer access to content purchased outside of Apple's walls, as long as the app doesn't have a "buy" button that connects consumers directly to an external store. That is: Apple won't make it easy for users to buy in-app content without going through Apple's store, but it won't outlaw it, either.

Apple initially stacked the deck to make the content companies as miserable as possible. That set it up to begin a new round of negotiations, in which it can suggest that the increase in volume will more than make up for the 30 percent cut it takes.

It might work or not, but the long term advantage in business doesn't come from winning everything you want up front. It comes from getting what you're looking for over time, no matter what roadblocks show up.

Related:

• Why Traditional TV Companies Will Fail: Consumers Hate Them
• Time Warner Cable and Viacom Fight Over Who Gets to Snuggle With Consumers
• Government Shutdown: Negotiation Gone Wrong -- or Right?
• Amazon Opens Its Music Locker To Close Out Apple and Google
• The Price of Google Wallet's Smartphone Payment Dreams

Image: morgueFile user johnsense, site standard license. Erik Sherman

Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.

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