Media Wars: 30% gambit is one battle in lost war

Posted on by Mike Evans

We continue to be fascinated by Apple's new tough stance on in-app purchases and their determination to take the 30% commission on all sales. The focus for the moment is on Amazon and what they will do to meet Apple's challenge.

What we are seeing here is one a battle in a war between the old-style distribution of media and the new, with Apple quite definitely representing the new. A lot will happen, I suspect, before Apple's June deadline, but make no mistake: We are seeing a seismic shift from the old publishing model to the new. It's a new world where there is no room or need for the traditional middle man.

This has already happened in the software publishing world. The retail box and CD is dead; within a year or two everything––except perhaps some complex, high-end packages––will be downloaded. And most of those downloads will come from app stores. That's why, by and large, software publishers are happy with Apple's 30%-commission model. With this new direct marketing of software the developer is spared so many unnecessary costs that he can well afford to pay Apple.

World-class storefront

No longer do software publishers have to deal with packaging, distribution, retail sales commissions, selling and payment costs; no longer do they have to deal with returns and credit card problems because Apple does all that for them. In return for their cut, Apple provide a world-class storefront and a painless form of distribution. Developers understand, too, that with exposure in the App Store or the Mac App Store they are likely to sell at least 50% more product than they could hope to do with the direct or retailer-based model.

Now look at Amazon. Amazon are a retailer and, by all accounts, operate on very tight margins. I am sure that Amazon simply cannot afford to pay Apple their 30%. This is a real problem because Amazon are in the middle between publishers and consumers. Apart from their web site and the Kindle reader (which is small beer in the great scheme of things) Amazon have no direct access to the hundreds of millions––soon to be over a billion––customers of Apple and Google, not to mention RIM, Microsoft and other players.

New middleman lives in Cupertino

Then we move to the book publishers themselves. They are still clinging to an archaic business model where the paper book is king. Everything is geared to publishing books and electronic books are a very lucrative sideshow. In fact, they are being used as a milch cow to fund the old-fashioned and hideously expensive process of printing and distribution of real books.  This cross-subsidy can only grow as sales of traditional books crumble in the face of ebook acceptance. We have to ask what publishers are for. They are also middle men, taking a large chunk of the profits, paying limited royalties to authors and commissions to retailers. I for one resent subsidising old-fashioned publishing methods every time I download a cheap-to-produce ebook.

In the new world envisioned by Apple, there's room for only one middle man and he lives in Cupertino. How soon will it be before authors can afford to cut out their publishers and sell direct through, say, the iBookStore? Not long, I suspect, if the rate of growth of ebooks continues at the present rate. There is no fundamental difference between software publishing and book publishing.

Amazon clearly have the problem, not Apple. Amazon still continue to benefit from growing physical book sales as they drive out the traditional high-street bookstore. But as the action moves into the ebook world, even Amazon will feel the draught unless they can keep Apple, Google and the others happy.

Consumers fickle

On the plus side, Amazon have their Kindle reader and the Kindle ecosystem with the relatively painless buying process via the Amazon site. But if they lose access to iOS devices––never mind Android, RIM or Windows 7 Mobile phones and tablets––the universal-access benefits of the present Kindle ecosystem will crumble. Consumers are fickle and, without easy access to Kindle books on their iPads and iPhones, they will soon go elsewhere.

It's not only the book publishers who hate Apple's 30%, it is also  the traditional newspaper and magazine groups who are struggling to come to terms with the new technology. But they are all, like Nokia's boss, standing on a burning platform. Revolution is in the air and they'd better find a way of living in the new world.

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