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Is Apple’s new subs system great news, terrible news, and/or an anti-trust lawsuit waiting to happen?

By | Published on Thursday 17 February 2011


There’s been a mixed reaction to the new app subscription system unveiled by Apple yesterday. As previously reported, the new system will enable those companies that sell subscription-based content services via an iPhone or iPad app to charge any regular subscription fees via the Apple app store, rather than having to have a direct billing relationship with a subscriber. However Apple will charge a 30% commission on any such transactions.

As Apple was very keen to point out yesterday, the 30% commission will only apply when a subscription fee is taken via the app store. Any subscription monies taken via a service provider’s own existing billing system will not be subject to any commission. Which is nice of them.

But – and this is the big but – any subscription-based app made available via Apple’s store will have to offer customers the option to pay for their subscriptions via the Apple platform at the same price as if they chose to have a direct billing relationship with the service provider.

Meaning that anyone offering an app-based content service to iPhone or iPad users will have to accept paying a 30% commission on at least some of their subscription revenues. And given the whole point of the app store subscriptions system is that it makes the payment process simpler for the customer, and therefore will be an attractive option for new subscribers, the commission might end up applying to a sizable portion of subscription revenues.

Some in the media sector are unphased by the size and compulsory nature of Apple’s commission fee. Newspapers and magazines are used to a sizable portion of subscription revenues going to a distributor and retailer, and for them 30% is a favourable cut to have to hand over. And any new system that makes it easier for customers to subscribe is good news, given that media owners are already facing the challenge of convincing customers to pay for content they’ve been previously receiving for free.

But for other businesses – especially those in the streaming music space – Apple’s proposals could be disastrous. For a number of digital music providers, Spotify and We7 among them, it is the mobile app versions of their services that entice customers to sign up to premium subscription packages. But for these companies, who have to pay licence fees to record labels and music publishers for the content they carry, profit margins are tiny (and in some cases non-existent), and the thought of having to pass three pounds of every ten pound subscription over to Apple will be very worrying.

US music service Rhapsody was most vocal in expressing its disappointment at Apple’s subscriptions system yesterday. The company’s boss Jon Irwin said he had no problem paying Apple a commission for subscriptions charged via the IT giant’s app store, but that 30% was way too much. Or “economically untenable” to use his words.

He told reporters: “We have to pay rights holders (the music labels and publishers) for our content. With all those fees that go out, [adding] Apple’s 30% will exceed the revenue on our product. It’s not a matter of making less money, it would be zero profit. Our position isn’t that Apple doesn’t deserve a take, they provide a valuable service [with the App Store], but there’s a fair value that they should receive for that”.

Some, especially in the US, have raised new anti-trust concerns over Apple’s latest innovation. Any content service providers wanting to reach iPhone and iPad owners – which is all content service providers – are forced to sign up to Apple’s new subscriptions system at the 30% rate because the IT giant’s app store is the only way to reach customers using those devices, because of the closed-shop nature of the Apple platform. And that, when coupled with the compulsory status of the new system, is, some would argue, anti-competitive.

An increasing number of legal commentators, again especially in the US, see Apple as a multi-billion dollar anti-trust lawsuit just waiting to happen, as increasingly arrogant management at the ever-powerful IT giant seem to employ the same approaches to business as used by the guys who ran Microsoft back in the 1990s.

Whether the app store subscriptions system could be what ignites such an anti-trust battle – which could lead to Apple being broken up or, at the very least, being forced to open up its platforms – remains to be seen. Certainly the Rhapsodys of this world were consulting their lawyers yesterday, and may well use the threat of such action in any negotiations on the compulsory nature of the app store subscription system and the 30% rate. Though the Apple bosses who hide behind all that trendy marketing and a cuddly, ailing CEO, are so arrogant these days, they’d probably call said lawyers’ bluff.

Apple’s legal men would presumably point to Google as proof they are operating in a competitive environment. And their web giant rival yesterday launched its own subscriptions system – Google One Pass – which will enable signed up customers to pay for access to multiple content services, accessed via the web or apps on the Android platform, through one account. Google will only take a 10% commission.

Though, of course, Google’s system won’t work for services accessed via apps on the iPhone or iPad, so its existence and lower commission isn’t necessarily a motivation for Apple to offer a more competitive rate, and therefore not necessarily a sufficient counter-argument to any allegations of anti-trust behaviour.

Unless, of course, enough content owners would dare to pull their services from Apple’s app store making the burgeoning Android market place more attractive. Few will want to take that risk though, if they did, they’d reduce both Apple’s market dominance, and the potential of an anti-trust case being filed against Steve Jobs et al.

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