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What Would Apple Do If Providers Don't?

There's been a lot of hooplah and unrest over Apple's recent decision to take 30% off the top of all subscriptions to digital content (the language of their T&C implies that it's not restricted to "print" media, but also music, movies, etc.) purchased via iOS Apps.

Google promptly countered with OnePass, a move that will certainly appeal to content providers. Of course, Google doesn't have Apple's footprint in the tablet market (although Android currently ranks #1 in terms of smartphone operating systems), but if any of the budding hardware manufacturers can hit the market with a good device that doesn't cost more than the iPad, things could get interesting.

A friend of mine recently took a job as a Product Manager at Redbox, the company that puts those giant red  machines ("red boxes") in grocery stores that vend DVD rentals at $1 each. It's the alternative for people who either don't know about Netflix or who prefer physical media and tangible devices to all those online thingamajigies.

Apparently Redbox is interested in entering the streaming business; throwing their hat in the ring with Netflix, Hulu, Apple, and Amazon. I asked him what the biggest hurdle to offering a streaming solution was, initially expecting him to talk about getting the technical infrastructure set up, etc. His two word response: "The Content".

Licensing streaming rights from production houses is rapidly becoming a very expensive proposition. He told me that Netflix recently renewed a multi-year streaming deal with a major production house, and they paid roughly 10 times the amount of the previous deal. Production companies are catching on that there is money to be made in the online streaming business. That makes entering the market for newcomers a challenge; you have to have deep pockets to play that game because content is king.

Reflecting on this, I have to wonder if the same condition is true for devices like the iPad. Let's hypothesize for a moment that in response to Apple's 30% cut and requirement that there can be no promotions available anywhere (including direct B2C!) that undercut the price offered via the Apple App Store, the major content providers simply opt-out. Thanks, but no thanks.

Imagine that Netflix, Hulu, Amazon, The New York Times, et. al. decide to yank their iOS applications and instead offer mobile app content exclusively to non-Apple devices. Would then the iPad still be such a "magical" device if all you could do was play Angry Birds, check your email, and use iOS Safari to browse the web? If the key content providers decided to play hardball with Apple, what do you think Apple would do?

This also potentially affects game developers too. What if someone downloads the Farmville app and creates their account via an iPad. According to the new T&C, 30% of all purchases will go to Apple. For every bag of premium seeds and FV cash you buy, Zynga loses $0.30 on the dollar. That's a HUGE cut in revenue.

Like with streaming video, is the content what makes the mobile market run, or is it the "magical" iOS? I suspect it's the former, although I suspect Apple believes it's the latter.

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