of all the apps on iOS that require subscription, what percentage do you guys think are provided by industry players (e.g. Amazon, NetFlix, NYT etc) compared with small dev shops? 90/10, 80/20, 70/30... 50/50? i'm going to use 90/10 as the base case example.
here's a basic model for a subscription service:
content creator => publisher/producer (P/P) => distribution channel/subscription provider => customer
traditionally P/P gained the most in the model. in print media the P/P and subscription provider were often the same like NYT. they acted as a gateway, filtered the product to get the cream of the crop, marketed the hell out of it and shipped to the retail channels. however, 2 problems (or changes) cropped up:
1. people are now opened to all sorts of media irregardless of quality. here's an extreme example, The Dark Knight in my opinion is superlative film making and then you have fart apps... point is, consumers spent real money for both.
2. the way people consume media is radically changing. all that means is that interaction with media is changing from a planned action (fireside chats with FDR) to a habitual one (YouTubing while on the pot... what, you guys don't do that?).
given this scenario why are publishers or producers needed aside from financing? financing isn't hard seeing as how active our capital markets are. finding content creators isn't difficult if your customers aren't picky about quality. but providing customers? that is difficult. how do you guarantee a video to viral as opposed getting only a few hundred hits? how do you guarantee a user base?
suddenly distributors just moved upstream. you're an aspiring writer? don't waste your time with Random House, just scan your novel into a PDF and sell it on Amazon. that's where writers want their novels to end up right? you made your own TV show? why try to pitch it to NBC when NetFlix is willing to buy TV shows? this segment is where Amazon, NetFlix and Apple all play in right now. it's pretty weird because NetFlix operating on iOS is essentially a distributor distributing to another distributor. this suggests that companies see the current real value of media in the customer base. that is what's being fought over.
Amazon's Kindle user base is nice but add iOS and Android in the mix then you're talking some heavy numbers. they can use that as leverage against publishers to increase their margins. the same leverage can be used against iOS and Android. if Apple/Google want the Kindle user base on their phone OS then they better pay up. now i don't know how many people use the Kindle app, maybe a couple million or a couple thousand. doesn't matter. what does matter is when NetFlix, Hulu, Rdio, Mog, Rhapsody, The Daily, NYT all start doing the same thing because thats when some heavy numbers will be shifting. if that's the case, do phone OSes provide value then? at that point, the value could be in the subscription services an OS provider is able to contract which means they have ineffective control in attracting users (e.g Meego and Bada).
Google does a great job using this strategy. Motorola, HTC, Samsung and LG are only as good as the version of Android OS they are running. anything less than the current stock release causes dissatisfaction not because the phone is broken but simply because it doesn't have version X. a Nexus phone is periodically released to remind its user base on what the ideal Android phone is, thus discouraging the hardware guys from getting fancy with Android. It's essentially a silent warning that at anytime Google can rip the users from Moto/HTC/Sammy by making their own phone because Android is providing the value, not the hardware. it's a free OS. the hardware guys are only good for a touch screen, plastic body and camera. it sucks when you can't differentiate your product.
finally, why the 30% and rigid price structure?
1. it serves as a test to see who's got the bigger pair. if the pricing pressure is pushed towards the consumer it may indicate that P/P still have muscle left and that subscription businesses are still maturing. basically nothing has changed. if the pressure moves towards the P/P then it may hint at a power shift within the media industry. this would give phone OS makers something to chew on. which leads to #2...
2. a percentage cut + price structure helps retain OS equity. the cut affects the subscription companies' and P/P's business control. do they tell customers they increase price, do they re-negotiate with each other or take it to court? without the ability to differentiate on price, it becomes difficult for subscription business to pit OS makers against one another. it all takes time to settle the uncertainties.
3. time. iPhone came out in 2007, the first Android phone in 2008 and by 2009 Windows Mobile/Blackberry/Symbian were hurting bad. how long does the average corporate lawsuit take to get settled? i have no idea, but anything less than half a year is too long seeing how fast this market is moving.
i don't really see this as a grab for money. 30% of Netflix's 3Q 2010 operating cash flow is only .4% of Apple's, that's assuming Apple takes all of their 12 million subscriber base. movies/tv streaming services are supposed to have higher margins than music which have higher margins than ebooks. i honestly doubt Apple will risk pissing off business partners for such a small bump in cash flow.
to me, it just makes more sense to see this as a powerplay in a new business market where companies are battling for strategic and comparative advantages. we see NetFlix trying to move their value chain upstream, we see HP doing the same with WebOS, Amazon is trying to break into digital publishing, Google seemed to have the same plan albeit with less aggressive pricing... probably offset due to their influences on the hardware side.
it's not about being greedy, evil or a jerk. it's simply good business, struggling business or Blockbuster and Borders. which one do you think companies would choose?
