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Facebook and Apple can’t agree on terms, so Facebook’s subscription tool will only launch on Android phones

  • Facebook and Apple are butting heads over Facebook's plan for a new subscription tool in its mobile app
  • Apple wants a 30% cut, Facebook wants all the money to go to publishers
Examples of the way Facebook’s planned subscription tool will work on Android phones.
Source: Facebook
Examples of the way Facebook’s planned subscription tool will work on Android phones.

Facebook's effort to help media companies sell subscriptions has hit a snag: Apple.

The two companies are butting heads over Facebook's plan for a new subscription tool in its mobile app. The tool will put paywalls around some articles in Facebook's news feed, and then send users to publishers' sites to buy subscriptions.

The issue: Apple wants to take as much as 30 percent of any subscription revenue Facebook helps generate. Facebook wants all of the money to go to publishers.

People familiar with both companies say they've been discussing the impasse for months. In the meantime, Facebook says it is rolling out a version of the subscription tool that will work on Android phones in the next few weeks; it says it will work with publishers including the Washington Post, Hearst and Tronc.

That tool will allow publishers to use two kinds of paywalls around "Instant Articles" that Facebook hosts on its mobile apps — a "metered" version, which turns on after Facebook users have read 10 of the publisher's articles in a month, and a "freemium" version, where publishers can put paywalls around individual articles.

In both cases, users who hit the paywall will be sent to the publisher's site to sign up for a subscription. Facebook has previously said it won't take any of the money publishers generate from subscription sales, and won't capture customer data generated in the transaction.

The hang-up with Apple stems from the company's rules about subscriptions sold inside apps on its iOS platform. Apple takes a cut of up to 30 percent of subscription revenue from "in app" sales.

And even though Facebook's plan calls for users to sign up for subscriptions outside of its apps, on publishers' individual web sites, Apple officials consider that an "in-app" purchase, since the impetus for the transaction kicked off inside Facebook's app.

That rule is meant to prevent, say, Spotify or Amazon from telling Apple users to leave the app and sign up for subscriptions on their own sites, as a way to dodge Apple's tax. People familiar with Facebook's plans say Google won't take a cut of subscriptions users sign up for using its Android operating system.

Apple declined to comment. Facebook didn't comment on its dispute with Apple, but outlined its plan to launch the subscription tool today in a blog post, and offered this comment from Campbell Brown, the former journalist it has hired to work with news publishers:

"We know subscriptions are an important business model for many in the news industry, that's why we've been working hand-in-hand with publishers to create a product that will drive real value for them. We're committed to this effort and optimistic that we'll launch a test on all mobile platforms soon."

The friction over Apple's app rules is an echo of earlier disputes Apple had with publishers, when it first set up rules about subscription sales.

Apple's initial rules about in-app subscriptions date back to 2011, when publishers were spending a lot of time thinking about how they would sell subscriptions via iPads. Publishers' ambitions for that device never panned out, but they're still interested in getting people to pay them for content.

About 45 percent of U.S. smartphone users have Apple iPhones, according to comScore, with most of the remaining 55 percent using Android devices. But iOS users have always been bigger spenders on paid services.

Facebook, meanwhile, says its efforts to help publishers sell subscriptions is an outgrowth of its Facebook Journalism Project, a long to-do list of things the social network says it wants to do to create a "healthy news ecosystem" — an effort that got a jolt of energy following the 2016 election.

Note that not every publisher likes Facebook's subscription plan. Notable holdouts from the test plan the company is announcing today include the New York Times and the Wall Street Journal.

Some publishers have previously complained that they want to be able to set the terms of the paywall, instead of letting Facebook determine how many times readers can view their stories for free.

By Peter Kafka, Re/code.net.

CNBC's parent NBCUniversal is an investor in Recode's parent Vox, and the companies have a content-sharing arrangement.