Apple Is Scooping Up Texture, a Subscription-Based Magazine Service

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Apple (NASDAQ: AAPL) announced this morning that it has agreed to acquire Texture, a digital magazine service that offers unlimited access to a broad catalog of magazines for $10 per month, earning it the nickname of "the Netflix of magazines." The Mac maker doesn't often announce its acquisitions, which typically get leaked to the media first only to have Apple confirm the deal with its standard statement.

No financial terms were disclosed. Texture is owned by Next Issue Media, a joint venture between prominent magazine publishers Conde Nast, Hearst, Meredith, News Corp, and Rogers Media. Private equity firm KKR also invested $50 million in Next Issue Media in 2014.

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Apple has tried to help revive magazines before

The deal appears to represent Apple's latest effort to help the publishing industry. Apple had launched Newsstand years ago around the same time it released the original iPad. Newsstand was the spiritual predecessor for Apple News, which was released in 2015. The company is now starting to take Apple News more seriously, wanting to help publishing partners improve monetization.

Meanwhile, Texture was a way for publishers to better transition to the digital age, where modern consumers demand mobile access to content while simultaneously having a lower propensity to pay for individual magazine subscriptions. It's not clear how large Texture's subscriber base currently is, but CEO John Loughlin told the New York Post in 2016 that the service had "hundreds of thousands" of paying subscribers.

In an apparent reference to the ongoing controversy surrounding fake news and the role that tech giants have inadvertently played in distributing misinformation, services chief Eddy Cue said, "We are committed to quality journalism from trusted sources and allowing magazines to keep producing beautifully designed and engaging stories for users."

Growing services and subscriptions

A few hundred thousand subscribers paying $10 per month isn't going to be very noticeable on Apple's income statement, which would represent annual revenue of anywhere from $24 million (200,000 subscribers) to $108 million (900,000 subscribers).

However, Apple often makes acquisitions in search of technology that it can integrate across its other offerings. Presumably, elements of Texture will find their way into Apple News in the near future. The company has been heavily focused on growing its services business, highlighting how many paid subscriptions it has on its platforms that generate high-margin, recurring revenue. At last count, there were 240 million paid subscriptions.

Those subscriptions include everything from Apple Music to iCloud storage to third-party subscriptions that Apple gets a cut of. The company tweaked its revenue-sharing model for subscriptions in 2016, reducing its cut from 30% to 15% after the first year in an effort to encourage developers and publishers to nurture long-term relationships with users while offering better economics for those third parties.

Texture will add another category of subscriptions that Apple offers directly, and it can likely flex its marketing muscles to meaningfully grow the paying subscriber base. Apple will ideally want users to subscribe to its music service ($10 per month), cloud storage service ($1 to $10 per month), and magazine service ($10 per month). That could generate upwards of $360 in annual subscription revenue from those users -- more than half of the average selling price (ASP) of an iPhone last year.

Considering Apple's emphasis on services and subscriptions, there could be more deals like this in the future.

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Evan Niu, CFA owns shares of Apple and NFLX. The Motley Fool owns shares of and recommends Apple and NFLX. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.