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Apple News+ Sure Looks Like a Flop

By Evan Niu, CFA - Nov 15, 2019 at 12:00PM

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The Mac maker's premium news subscription service hasn't grown subscribers much since launching.

Shortly after Apple ( AAPL 3.55% ) launched its premium news service, Apple News+, in March of this year, the company had reportedly grabbed 200,000 subscribers within the first couple days. There are conflicting reports as to exactly how many subscribers Texture had when Apple acquired the magazine subscription service in early 2018. The New York Times said 200,000 subscribers is more than Texture ever had, while the New York Post claimed that Texture had 240,000 subscribers at the time of acquisition.

Either way, Apple News+ hasn't really grown much after those first two days.

Magazine on an iPad

Image source: Apple.

Stuck at 200,000

CNBC reports that Apple has not added many subscribers beyond that initial wave of 200,000 sign-ups in the nearly eight months since launch. The service costs $10 per month and provides subscribers with unlimited access to a catalog of around 300 magazines. Sources told the outlet that the subscriber base "hasn't increased materially from its first couple days."

Apple News+ on an iPhone

Image source: Apple.

The lackluster subscriber figures are a disappointment to publishers who had gotten onboard with the service, even though Apple keeps half of all revenue for itself while outlets split up the rest based on engagement.

At $120 per year, 200,000 subscribers would translate into $24 million in annual revenue, with Apple earning $12 million of that total. That revenue is pretty meaningless in the context of the tech giant's overall services business, which is now approaching $50 billion in annual revenue.

Overpaying for subscribers

Apple has never formally disclosed financial terms around the Texture acquisition, but the Mac maker is reportedly paying an astronomical $485 million over the course of three years: $100 million up front followed by $385 million paid to publishers over that time frame. That's a peculiar structure, which is why it might consist primarily of licensing costs.

If Apple ends up paying all that money out while simultaneously failing to grow News+ subscribers, it will be paying over $2,400 per subscriber. Earning half of $10 per month, it would take over 40 years to recoup that cost. Publishers have an option included in their contracts that allow them to bail on the service after a year if they're unsatisfied with the results, according to Bloomberg.

Bundling to the rescue?

The dire situation for Apple News+ helps explain why Apple is looking to bundle the service alongside Apple Music and Apple TV+. It seems clear that most consumers aren't willing to pay $10 per month for the service, but any bundle would inevitably carry some type of discount that could make it fit in the monthly budgets.

Apple has tried to prop up the publishing industry numerous times in the past. Its latest effort doesn't seem to be the savior that Apple hoped it would be.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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