The iPad app upper hand

Published in Business Spectator (Melbourne), 30 December 2010

Devices such as Apple’s iPhone and iPad are becoming more and more important as platforms for distributing news. The media markets of the future depend on the ability of publishers to present their content on them. For this reason, the activities of public broadcasters in the growing market for mobile applications deserve closer scrutiny.

Forecasting the business impact of new media technologies has a poor track record. When radio was invented, some experts feared for the viability of newspapers. As it turned out, these experts were wrong as they had not foreseen that people still wanted to read news as well as listen to it. When television broadcasts started, other experts proclaimed that moving images meant the end for radio. Once again, the experts were wrong as TV viewers still wanted to listen to news and not just watch it.

Given this poor track record of forecasting the way people inform themselves, we should not believe that the impact of the latest wave of new technologies is a foregone conclusion. Although everybody is going crazy over smartphones and tablet computers, it is not clear whether these new devices have the potential to completely replace older media such as printed newspapers, radio and TV.

What seems certain, however, is that the importance of applications (‘apps’) for mobile devices will continue to grow. Apple’s famous ‘App Store’ was launched only two years ago but it already boasts more than 300,000 individual apps ready for download. This underlines how fast this market is growing.

A few days ago, another app joined the club. It was not just any new app but one that had caused heated political debates in Germany months before it was launched. The app in question is ‘Tagesschau App’ and it bundles the news reports of Germany’s largest public broadcaster, ARD (Tagesschau is the name of ARD’s main TV news bulletin).

What made the app so controversial is the way it is financed and offered. As a public broadcaster, ARD receives its revenue mainly from TV and radio licence fees that all households owning TVs and radios are compelled to pay. In return, ARD is obliged to provide a basic, free news service to the public on radio, TV and online. The scale of ARD’s operations is impressive. With a budget of 6.3 billion euros (approximately $8.2 billion), it is the world’s largest non-commercial broadcaster.

ARD officials have now concluded that, given the new media realities, a basic supply of news now has to include distribution to mobile devices. Thus the idea of a ‘Tagesschau App’ was born. Like all other ARD news products on radio and TV, this app was to be made available free of charge to the user.

In a way, this pricing decision is understandable. The news content ARD uses for their app has already been generated for its other media channels on radio and TV – and it has already been paid for by licence fees. However, with their decision to offer news stories, videos and commentary free of charge on mobile devices, ARD is undermining the efforts of media publishers to offer their own services in iPhone, iPad & Co.

When Apple’s iPad was launched, newspaper publishers were jubilant. After difficult years trying to find a viable business model for online news services, they believed to have finally found it. Readers could purchase subscriptions to their products for a moderate fee and then read and watch news comfortably on their tablet computers. As Mathias Döpfner, chief executive of Germany’s publishing giant Axel Springer AG, said at the time: “Every publisher in the world should sit down once a day and pray to thank [Apple boss] Steve Jobs that he is saving the publishing industry.”

As it now turns out, publishers’ jubilations may have been premature. Although their business plans may well have worked, they did not take into consideration that public broadcasters could thwart them with free rival products.

In Germany, a new battle between licence fee funded broadcasters and commercial publishing houses has just begun. The final outcome is difficult to predict, but it is quite obvious that there is no level playing field between the competitors. Who would pay €22.99 for an annual subscription to the iPhone app of the Frankfurter Allgemeine newspaper when he could get a vast array of news items free of charge through ARD’s Tagesschau app?

Fears of such a distortion of competition have led an unusually large coalition of newspaper and magazine publishers to warn of the negative impact of the Tagesschau app on the media industry. To them, it is not clear why the extraordinary privileges given to public TV and radio stations should extend to their online operations. Relying on compulsory licence fees, they can crush their competitors in a world in which TV, radio and the Internet are becoming increasingly integrated.

In Australia, the basic problem is the same. The ABC is also providing more and more of its services through new distribution channels, and just as their public broadcasting counterpart in Germany, the ABC does so free of charge to the end user. ABC news provides for local, regional, national and international news. Sounds and videos accompany many of the news items. Comment is provided through the ABC’s ‘The Drum’ website. And all of this can be subscribed to through Apple’s iTunes service at no cost, whereas competitors like The Sydney Morning Herald charge $4.50 for a weekly iPad subscription.

Time will tell whether consumers are willing to pay for news products despite the availability of free content provided by public broadcasters. As with previous technology innovations, it is possible that both types of news may co-exist rather peacefully.

However, this is by no means certain. And for this reason, the competition between commercial publishers and public broadcasters in the market for news apps should be monitored closely. The privileged funding position of public broadcasters, either based on TV licences or taken straight from the taxpayer, should not be abused to outcompete commercial publishers.

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