In just a matter of days, Apple (NASDAQ: AAPL) is widely expected to show off the premium news subscription service it's been working on for at least the past year after acquiring Texture. The news service is expected to cost somewhere around $10 per month, with Apple keeping half of subscription revenue and the remaining half being split up among other publishers aggregated within the service based on the engagement their content generates. The tech titan has reportedly gotten The Wall Street Journal on board, along with Vox.
One prominent publication that isn't interested is The New York Times.
Lessons from Netflix
In an exclusive interview with Reuters yesterday, The New York Times (NYSE: NYT) CEO Mark Thompson explained why his company isn't interested in joining the forthcoming third-party distribution service. Thompson drew several comparisons to how Netflix (NASDAQ: NFLX) used a similar model to reshape Hollywood.
"We tend to be quite leery about the idea of almost habituating people to find our journalism somewhere else," Thompson told Reuters. "We're also generically worried about our journalism being scrambled in a kind of [food processor] with everyone else's journalism."
Many studios and content owners licensed their shows and movies to Netflix, helping the streaming service amass an enormous subscriber base (nearly 140 million globally at last count). "If I was an American broadcast network, I would have thought twice about giving all of my library to Netflix," the chief executive added.
Thompson expressed concern around ceding all control over the customer relationship to Apple, which has long been a worry among publishers. Expectedly, the other big challenge is whether or not the underlying economics are viable. The Times charges about $15 per month for a digital subscription, and added 265,000 net new digital subscriptions in the fourth quarter. Total paid digital-only subscriptions are now approaching 3.4 million.
"We ended 2018 with $709 million in total digital revenue. This means that after just three years, we are already three quarters of the way to achieving our five-year goal of doubling digital revenue to $800 million by 2020," Thompson had said in a statement in the company's earnings release last month. "As a result we are setting ourselves a new goal -- to grow our subscription business to more than 10 million subscriptions by 2025."
Signing on with Apple's news service could undermine that progress. In a worst-case scenario, partnering with Apple could even cannibalize The New York Times' digital subscriptions. Some subscribers would inevitably cancel direct subscriptions and sign up through Apple, forcing The New York Times to give up $15 per month in exchange for a cut of $5 per month. That's not a sacrifice that Thompson is willing to make, according to the report.
Apple is hoping that it can offset lower per-subscriber revenue with volume, attempting to leverage its massive worldwide installed base. The tech giant recently confirmed it has 1.4 billion active Apple devices, of which 900 million are iPhones.
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Evan Niu, CFA owns shares of Apple and Netflix. The Motley Fool owns shares of and recommends Apple and Netflix. 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 recommends The New York Times. The Motley Fool has a disclosure policy.