Brief:

• Apple is getting pushback from major media companies over the proposed financial terms for its Apple News digital newsstand, The Wall Street Journal reported. The service aims to be a "Netflix for news" by charging consumers a flat monthly fee for an unlimited amount of content from participating news and information providers.
• Apple has told some news organizations that it plans to keep about half of subscription revenue from the service, which is expected to start this year as a paid tier of its Apple News app, sources told the Journal. Apple would collect the remaining revenue in a pool and divide it among content providers based on the amount of time users spend with their articles.
• News organizations also are concerned that Apple likely won't provide access to subscriber data, like credit card information and email addresses, that is a key part of building customer databases and marketing efforts, the Journal reported.

Insight:

Apple has built a fast-growing services business — which likely will include the paid tier to Apple News — as the tech giant faces slowing sales for its flagship iPhone. The company stopped reporting unit sales for the device, but said iPhone revenue dropped 15% to $51.98 billion in the December quarter amid a 27% plunge in China. Apple's high-margin services business, which includes the App Store, Apple Pay, Apple Music, iTunes and iCloud storage, showed healthy growth of 19% to $10.88 billion, putting the company on track to reach its annual goal of $50 billion by 2020. Apple this year also plans to develop original TV programming as part of the effort to boost paid subscriptions on its devices to 500 million by 2020 from 360 million now, the Journal reported.

The company said 85 million people use its Apple News app, which is an inviting audience for news organizations like The New York Times, the Washington Post and The Wall Street Journal. All three newspapers are said to be in talks with Apple about distributing their paid content on Apple News. But the news industry also is cautious about working with big tech companies that are major sources of readership and are fierce rivals for digital ad revenue.

"It feels like a punch in the nose, to hear those [revenue sharing] numbers," Jason Kint, CEO of Digital Content Next, said to Ad Age about reports on Apple's fee structure. "There is significant concern around how platforms are squeezing the oxygen out of the media ecosystem."

Content companies have cut thousands of workers or gone out of business while tech giants like Facebook, Google and, increasingly, Amazon have thrived. Facebook last year changed its news feed to de-emphasize professionally produced content amid an effort to address concerns that passive viewing was psychologically damaging to its users. The change triggered steep drops in viewership and revenue for some media companies. However, Google has changed its news aggregation section to stop readers from circumventing publisher paywalls. 

Media companies have to consider how much incremental revenue they will earn from Apple News while avoiding cannibalizing audiences who are willing to pay for a subscription. As news organizations contend with declining ad sales, they have turned to paid subscriptions for revenue. The New York Times last week reported digital revenue of $709 million for 2018, including a 27% jump in subscriptions to its news, crossword and food apps to 3.3 million. Digital advertising surpassed print ads for the first time in Q4 2018, and the newspaper needs to protect that growth. Amazon CEO Jeff Bezos, who bought the Washington Post in 2013, said in a speech two years ago, "We've tightened our paywall, and every time we've tightened our paywall, subscriptions go up."

News organizations are getting in the same boat as app developers and streaming media services that have had to contend with Apple's fee structure for the App Store. The iPhone maker collects a 30% cut of initial download fees and 15% of subscription revenue after the first year. Epic Games, maker of the hit videogame "Fortnite" has been especially critical of the "Apple Tax." Founder and CEO Tim Sweeney has described the fees paid to Apple and Google as a "parasitic loss," and the company is launching its own app store to compete with Google. Meanwhile, Apple plans to offer a subscription service for video games that would let gamers pay a flat fee for a bundle of games, Cheddar reported.