Publishers Should Be Careful What They Wish For

Both the Wall Street Journal (s NWS) and Bloomberg News have confirmed earlier reports that Apple (s aapl) is working on a “digital newsstand” venture that would handle subscriptions for newspaper and magazine publishers through the iTunes store. To some publishers, who are starved for revenue and see the iPad as a route to the promised land of paying customers, this probably sounds like a great idea. But they should be careful what they wish for. Is gaining a revenue stream worth giving up control over their relationship with their readers — and advertisers?

According to the WSJ, quoting “people familiar with the matter,” Apple (S AAPL) has talked to publishers including Time Warner Inc.’s (s twx) Time Inc., CondĂ© Nast, News Corp., and Hearst Corp.’s newspaper and magazine divisions about selling subscriptions through an Apple system, and Hearst — publisher of Oprah Winfrey’s magazine, as well as Esquire and Cosmopolitan, among others — is said to be interested. The WSJ report said that the print subscription service could be announced as early as October or November. Bloomberg’s report is fundamentally the same, and quotes Roger Fidler, program director for digital publishing at the Reynolds Journalism Institute at the University of Missouri: the same source quoted by the San Jose Mercury News in its report about the talks last week.

It’s not surprising that Apple would want to extend its digital control to newspapers and magazines, having more or less sewn up access to the music industry and made an advance in movies, TV episodes, books and games. Publishers are bound to be interested; for the past several years at least, newspaper owners in particular have been dreaming about an “iTunes for news” that would funnel money into their pockets in the same way it does for the major record labels. The iPad and a digital newsstand seems to have the potential to realize those dreams once and for all. But should publishers take the bait? The short answer is that it depends how desperate they are.

As anyone familiar with the record industry knows, a deal with Apple would be the quintessential Faustian bargain. Have the labels made money from iTunes? Sure they have, and possibly more than they would have without it, but they make what Apple says they can make, and they price and offer their music in ways dictated by Apple. Even the attempt to offer flexible pricing for older music from the “back catalogue” took years of negotiations. And the company exercises a similar iron grip on what apps appear in the iTunes store, how much they cost and what features they can have.

It’s not just the 30-percent chunk of the revenue that Apple would take off the top that newspapers should be concerned about, either. For newspapers, access to subscription databases is about the only proprietary information they have when it comes to showing their value to advertisers. At this point, it’s not clear what information about subscribers Apple would provide to publishers, if any (although the San Jose Mercury News report says the company has proposed an opt-in process that would ask subscribers if they want their information passed along). That would effectively leave Apple in control of the relationship between a newspaper or magazine and its readers.

The bottom line is that for newspapers and magazines — desperate for any port in the current online storm — the potential for a quasi-guaranteed revenue flow from Apple may just be too appealing to resist, as it was for record labels when iTunes first came along, despite the potential for having their business dictated to them. Once they’ve cut a deal, they could wind up in the same place: sitting in a corner counting their digital pennies, while Apple builds the business that they should have built themselves.

Related content from GigaOM Pro (sub req’d):
What We Can Learn From the Guardian’s Open Platform
Monetizing Digital Content
Multiple Models For Social Media Businesses

Post and thumbnail photos courtesy of Flickr users Zarko Drincic and Yan Arief