9 Questions on Apple's 'iTunes for News' Store

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Includes: AAPL, AOL, GHC, GOOG, MSFT, NWS, NYT, PSO, SNE, YHOO
by: Ken Doctor

It's funny. I thought we'd see an "iTunes for News" years ago. It was just too confusing, though, to figure out what the jukebox would look like, the combination of coins needed to buy something, how the news tunes would be played, or kept or shared, and lots more.

So, it looks like we may finally see "iTunes for News" in 2011, if not just before year's end.

Today, we've got a news break on Apple's new storefront for news companies, out of the Mercury News. As genuine news, conjecture and a share of misinformation slips into public awareness, we'll all await Apple's (NASDAQ:AAPL) formal announcement. Until then, let me pose nine questions on Apple's "iTunes for News":

1) Will news companies let another new middleman get in between them and their readers? They did it once, as Google (NASDAQ:GOOG), Yahoo (NASDAQ:YHOO), Microsoft (NASDAQ:MSFT) and AOL (NYSE:AOL), became the great aggregators of the web age (1995-2010?), reaping the greatest share of the ad revenue benefit. They've half-vowed, "Never again!," but have mounted insufficient efforts to prevent a second coming.

2) Does the Apple's music store metaphor work for news? Well, maybe, the music store now dominates music sales, with almost 30% of the market, but music selling and news selling may not have a lot in common. The value of news is mainly singular, one-time-usage, with not much reason to "replay" it. At the same time, a continuing relationship to certain news providers -- a trusted local source or the Times or Journal -- is valuable, while few music buyers have any kind of relationship with a label. So news companies have long valued relationships -- subscriptions -- and increasingly in the digital age, want to broaden and deepen those relationships, the better to upsell and to target for advertising. As these issues began to arise with smartphone news app offerings, publishers were amazed by how clueless Apple execs seemed; they were in a business world they didn't understand and didn't feel a great need to adjust to. Over the months, there have been numerous discussions about customer relationships and customer data, but Apple's yet to prove it can play, and play fairly, in this new arena.

3) Are those Android footsteps we hear? Android-enabled smartphones are outselling Apple-enabled ones in the U.S. In addition, Android-powered tablets, many offered at a lower price point than the iPad, will soon flood the market. Finally, the Android store has grown to 80,000 apps. Add all that up, and Android -- I mean Google -- is a powerful competitor to Apple and its store. So whatever decisions Apple makes in the deal it offers news publishers -- or the prohibitions it could try to put into effect -- won't happen in a vacuum. Google already has lots of relationships with newspaper companies, through advertising partnerships, and can zag with its apps relationships if Apple zigs. That competition should be good for newspaper companies -- if well-played against.

4) Is Alesia an alternative and/or a partner for Apple's new news storefront? "Yes" may be the best answer. The News Corp (NASDAQ:NWS) paid content portal (code-named Alesia, while execs test a couple of consumer names) tuned to the tablet, but oriented to other platforms as well, is aimed at the same idea: a one-stop shop for digital news content bundles. It could fold into an Apple news store, a prime top-of-the-shelf brand within the store, or live outside the store. One way or the other, the News Corp notion is that it, and fellow publishers, should keep the revenue derived from their content, and if they share, share but a little. Given the absence of any other news consortium negotiator with Apple (and Google), News Corp, which has signed up partners already, may have a strong role in talks.

5) Why worry about 30% of $1.99? Okay, so a publisher sells an app for $1.99 or $4.99 and gives Apple 60 cents or a $1.50? No big deal, right? Certainly, one-time app pricing revenue doesn't add up to much. That's why the Guardian giving Apple a third of its well-selling one-time $3.99 app or the Washington Post (WPO) giving Apple 66 cents of its annual $1.99 app is no big deal.

But real subscription revenue will add up. We see The Wall Street Journal (NWS) doing nicely with its $17.29 monthly iPad subscription, and it doesn't have to share any of that revenue with Apple. It offers its app for "free" in the Apple store, and then does its own authentication and e-commerce.

Can you imagine the Journal sharing 30% -- or $5 -- of its $17.29 with Apple? So far, the Journal and the FT, which is offering mobile access as part of its subscription packages, have been able to keep both their revenue and their direct customer relationships, offering "free" apps in the store and powering subscriptions through their own handling of customers. The New York Times (NYSE:NYT) plans to do the same when it launches its paid iPad app later this fall. It will then link up that product with its broader all-access subscription plan, when it goes "metered" early next year.

The key here is not only financial, though that's big. The Times, Journal and FT highly prize keeping a direct relationship to customers, and maintaining direct access to all the increasing data generated. That's another kind of gold in the digital age.

So Apple's new offer may be directed to smaller newspapers and news organizations, those without the capabilities to do their customer commerce and management. Here, though, we see companies as diverse as Journalism Online and Mediaspectrum, a newly announced entrant in the tablet game, offering to power newspapers' digital ventures. Where might they fit into Apple's store? And how much will Apple's coming opt-in, out-out options for buyers prevent publishers from getting vital information about readers and their preferences?

6) Won't transition economics make this a big business? The stakes get even higher. The tablet threatens (promises) to be a replacement product for newspapers, in fact hastening the decline of print, as the tablet becomes the first pleasurable substitute for wood pulp. That will take several years, at least, to begin in earnest, but as it does, newspaper companies will want to transition over their print subscribers' payments to the tablet (anticipating that transition, numerous pricing schemes, are in motion, behind the scenes). So if tablets become a major source of reader revenue, the last thing news companies want to do is share that income -- in perpetuity -- with Apple or anyone else.

7) Will Apple allow the Journal, Times, FT and other big publishers to continue to offer "free apps" and keep subscription revenues for themselves -- or will they demand a cut? Those companies haven't yet heard any demands -- and Google's Android competition makes the likelihood less likely -- but it's a possibility.

8) What's the value of being included in the Apple store? So how will news readers get exposed to and make buying decisions on news apps/digital subscriptions? If digital subscribers are current reader/subscribers just moving to another platform, publishers believe their own marketing and communication will do the trick. If, as some magazine publishers have found with their fledgling iPad single issue apps, fresh-to-the-pub readers "discover" their brand within the increasingly packed news category, then Apple's got a more powerful case to make about its role in the value chain and why it's deserving of a cut. Undoubtedly, readers will be found in both places, which would argue for Apple (or any other source of new subscribers) getting a one-time referral fee, but just for those new customers, not for anyone who buys a subscription.

Bonus theoretical app store value question: How much indeed is it becoming an Apptastic world, as Steve Jobs tells us? Steve has said that apps are leaving search and even web browsing in the rear-view mirror. Yet publishers tell me they're surprised how much browser-based traffic they're getting via the iPad. In addition, as HTML5 kicks in, the browser experience will become more app-like, further confusing things.

9) Isn't Apple wanting 30% of fees for apps a little like [Sony (NYSE:SNE) CEO] "Howard Stringer demanding 30% of the revenue produced by TV shows running on Sony TV sets"? That's how a friend put it to me when we talked today. It's a confusing world, no doubt, but still Apple is fundamentally a manufacturer, with one great (music) store idea so far. Why should it insinuate itself permanently into the value chain?

Disclosure: No positions