Apple (AAPL +0.17%) shared an interesting metric for the first time last month: Apple News now has 85 million monthly active users (MAUs). That disclosure comes ahead of the expected launch of a premium news subscription service, which could be unveiled as soon as March 25. The Mac maker has already been negotiating with prominent publishers, with some balking at the onerous terms: Apple is asking for 50% of all subscription revenue, with publishers divvying up the remaining 50% according to the engagement they command within the service.
What remains to be seen is whether or not a subscription fee can actually fix the underlying problems in Apple News' economic model.
Image source: Apple.
There are plenty of problems
Digiday reports that many publishers are increasingly frustrated with Apple News due to incredibly poor monetization. Many publishers tolerated low levels of ad revenue as the platform was just getting off the ground, but the payouts have not increased much over time. Currently, Apple News is primarily monetized with ads, even though the company does also sell third-party subscriptions through the app. But ads have never been Apple's forte, particularly given its hard-line stance on privacy.
There are three primary ways that ads are sold on Apple News, according to the company's publisher guide. Publishers can sell ads directly, keeping 100% of revenue; they can allow Apple to backfill and sell the ads, keeping 70% of revenue; or they get a 50% cut of pooled ads that appear next to their articles in certain content feeds.
However, direct ad sales are challenging since Apple News doesn't have very robust targeting tools and also prohibits the use of third-party data, according to the report. Apple also bars publishers from using programmatic advertising, the preferred sales approach of many publishers.
Apple inked a deal with Comcast's NBCUniversal a couple years ago to handle backfilling ad sales, but publishers are complaining that those fill rates are too low, resulting in poor monetization. One publisher even called the fill rate "abysmal," according to Digiday. Despite a rapidly growing audience -- being featured by Apple News' editorial team can lead to a huge spike in traffic -- the payouts are still too low.
The report largely echoes another from Slate last September. A single article hosted directly on Slate's site that gets 50,000 page views brings in more revenue than the 6 million page views Slate grabs across all articles on Apple News in an average month, for example.
Subscriptions to the rescue?
Given Apple's fundamental disdain of ad-based businesses and the inherent privacy compromises, it should come as no surprise that it's not good at improving ad monetization on Apple News. However, there is a silver lining: better-than-expected subscription sales. One publisher told Digiday that they were impressed with the number of subscriptions they are able to sell through Apple News, even after factoring in Apple's 15% to 30% cut.
Selling subscriptions across its various platforms has become a critical aspect of Apple's growth strategy for its services business. The company now has 360 million paid subscriptions on its platforms, and expects to hit 500 million at some point next year.
Check out the latest Apple earnings call transcript.
The looming unknown is exactly what Apple's premium news subscription service will look like, and how it will play alongside other third-party subscriptions. Apple reportedly wants to bundle content from numerous publishers for an estimated $10 per month, which could undermine and cannibalize stand-alone subscriptions that those publishers hope to sell both on Apple News and outside of the platform. Investors might only have to wait a month before finding out more details.
