When Apple (NASDAQ:AAPL) first entered the content business, it offered creators, publishers, authors, and app developers a straightforward business arrangement.
The model, which launched with the iTunes music store in 2003, gave content creators and owners 70% of the sale price for anything sold on the site. That model has generally held across the company's other sales platforms, including its iPhone and iPad app store.
Apple's model set the tone for the entire app and content sales world. It's not a hard and fast rule -- Amazon.com (NASDAQ:AMZN), for example, incentivizes publishers and authors for being below certain prices, and penalizes them for being above others. In general, though, 70/30 has been the norm, and it's a split seen as fair by content sellers and creators alike.
However, a lot has changed since 2003. The competitive landscape has grown much more crowded, and it may be leading Apple to ditch the 70/30 split.
What is Apple doing?
The company is looking to pay content creators more to entice them to work with Apple. A creator can be anything from a single developer or small website to a major media company. In this case, the better split may be used principally to bring content from major players -- think TV networks, cable channels, and the big publishers -- to Apple's updated TV and Newsstand platforms. According to FT.com:
The improved terms being discussed with media companies would apply to revamped Apple platforms such as its long-anticipated TV update and forthcoming changes to Newsstand, its gateway to digital newspapers and magazines, rather than to its existing App Store terms, which will remain the same for developers, according to people close to the discussions.
Splits won't change in iTunes either. This is strictly an attempt to make better deals with content owners/creators on Apple's unproven platforms. In a broad sense, the company needs to make it worthwhile for developers to port their apps to the company's revised TV platform -- or create entirely new ones.
In the publishing space, Apple may need to offer better deals to creators due to the original Newsstand's failure. The app separated any content a user subscribed to (like a newspaper or magazine subscription) from the homepage. It was an ungainly setup that made content you were paying for harder to access, which neither consumers nor publishers particularly liked.
The new Newsstand will work more like Flipboard, melding content from multiple publishers across a single app. The company has not explained how that will work with paid-access content, but it makes sense for Apple to give more of any revenue produced to the publishers to get them on board.
Is this good business?
Taking a smaller cut in the new stores it's creating makes sense because Apple faces enormous competition in the set-top box space and the publishing world. Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Amazon have competing streaming players, and Facebook has stepped up its efforts to work with publishers to directly place content on the social media site.
Apple reported in early 2015 that it had "generated over $10 billion in revenue for developers" in 2014. To pay that much out, the company would have had to book more than $14 billion in app sales. That means Apple's cut on its app store sales amounted to at least $4.2 billion last year.
Driving that same success on new platforms requires developer interest. Apple TV is a tiny market compared to iPhone and iPad, however, and any new set-top box would be even smaller at first. Sticking to a 70/30 split might make developers, publishers, and content owners question the value of working with Apple on its new efforts.
Even worse, the company could face the same problem that has plagued Microsoft in its Windows 8 Phone app store -- companies develop an app, but fail to update or even maintain it when the market proves to be less than lucrative.
Will this work?
When Apple launched iTunes and its app stores, the market was very different. For the app stores specifically, there was limited competition. If you wanted to sell your app, you pretty much needed Apple.
That's simply not true anymore. Developers (and to a lesser extent publishers) have countless markets they can serve now, and even Android and the Google Play store have greater reach than Apple's App Store. There are dedicated apps for Amazon's Fire tablets, and Microsoft may become a major player again when it launches Windows 10 with integrated apps that run on phones, PCs, and tablets.
This isn't so much Apple wanting to do something, it's Apple needing to do it. To attract quality developers and to get publishers and content owners to put their content on yet another platform, the company needs to dangle a way to make more money. Altering the 70/30 split under these circumstances could lure more partners on board. That could bring in a bigger audience -- and if that happens, everybody wins.
Daniel Kline owns shares of Apple, Facebook, and Microsoft. He does not watch Game of Thrones but is shocked. The Motley Fool recommends Amazon.com, Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.