It's now been a little over a month since Apple (NASDAQ:AAPL) agreed to acquire Texture, a subscription-based magazine service that was in part owned by several prominent magazine publishers. No financial terms were disclosed, but it was fairly obvious that Apple would likely use the acquisition to create its own subscription-based news or magazine service of some kind. Texture had previously said it had hundreds of thousands of subscribers, and Apple can easily help scale that figure into the millions when factoring its marketing muscle and large installed base.
Investors are now getting a better idea of what the Mac maker has up its sleeve.
Why else would Apple buy a subscription-based magazine service?
Bloomberg reports that the company is planning to launch a subscription-based news service at some point within the next year, after integrating Texture's underlying technology directly into Apple News. Approximately 20 Texture employees were laid off following the acquisition, or about 20% of the acquired company, according to the report. Modest layoffs are common after acquisitions as acquirers pursue cost synergies and eliminate redundant positions.
Texture's subscription service includes access to over 200 titles for $10 per month. Publishers that participate with Apple's upcoming service will get a portion of the subscription revenue. Many publishers have been suffering from declining subscriber bases for years, which is partially why they created Texture via a joint venture in the first place: to test out the subscription-based access model that has proven popular in other forms of media like music (Spotify and Apple Music) and video (Netflix). The value perception of such services is quite strong among consumers, who can access a massive catalog of content while providing companies recurring revenue.
A growing portfolio of first-party Apple services
Apple currently sells third-party subscriptions to periodicals through its Apple News platform, but mostly on an individual basis for specific outlets. For its trouble, Apple earns 30% of that subscription revenue for the first year, dropping to 15% in subsequent years. The rumored service would very likely have different economics, as it sounds like a first-party, Apple-branded service. As such, the company would likely keep most of the revenue for itself, while still giving a relatively smaller cut to publishers that want to participate. That could be a boon for the profitability of Apple's growing services segment.
The company continues to work toward its goal of doubling its service revenue by 2020, with paid subscriptions being a core strategic pillar. Apple now touts how many paid subscriptions it has through all of its various digital storefronts, finishing 2017 with 240 million paid subscriptions. That includes Apple Music, which has added roughly 10 million paid subscriptions since last September. In addition to other subscription services like iCloud storage, a premium news service would fit in nicely within the company's ambitious services strategy.