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U.S. and EU regulators eye Apple subscription plan
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The Apple Inc. logo is seen through raindrops on a window outside of the New York City flagship Apple store in New York, January 18, 2011.
Credit: Reuters/Mike Segar
NEW YORK/BRUSSELS |
NEW YORK/BRUSSELS (Reuters) - U.S. and European regulators are keeping tabs on Apple Inc's plans to take a cut of the revenue generated by the sale of online subscriptions through its App Store following concerns voiced by publishers.
Some app makers are unhappy with Apple's new plan to take a 30 percent cut on all revenue from online subscriptions.
Regulators at the Department of Justice have kicked off an early stage inquiry into Apple's change of policy and are in the process of contacting publishers and also Apple, according to a person familiar with the plans.
In Europe, a European Commission spokeswoman said, "We are monitoring market developments carefully." But an official investigation appears unlikely, however, as commissioners believe rivalry in the field is increasing.
EU Commissioner Andris Piebalgs -- in comments to the European Parliament on the issue -- said it requires, "that Apple holds a dominant position in the relevant market."
"The boundaries of such relevant market(s) are not clear, as the sector is relatively new and evolving."
Apple said on Tuesday that publishers can set the price and duration of a subscription. They can also offer subscriptions through their own existing websites, but would be required to offer the same terms to anyone signing up through Apple.
This would mean customers who want to sign up for a Netflix Inc video account may have just two choices: They could do so through the Netflix website, in which case Netflix would keep the full fee, or they could subscribe through the applications in their iPhone or iPad which would cost Netflix 30 percent of its fees.
Seemingly in response to Apple's plans, Google Inc on Wednesday launched a new subscription service called One Pass for its Android mobile operating system and promised to take just 10 percent of subscription revenue.
U.S. music subscription companies like Rhapsody and Rdio have described the new Apple policy as "economically untenable" for their businesses.
"Digital music is a low margins business. Rights costs typically account for over 70 percent of revenues and payments, technology and marketing taking most of the rest," said Forrester analyst Mark Mulligan. "So Apple's 30 percent levy has the potential to instantly turn premium music subscriptions from low margin to negative margin businesses."
Other media companies likely to be affected include newspaper and magazine publishers who have been looking forward to reinvigorating their flagging print sales by offering their publications through subscriptions on tablets like the iPad.
Apple was not immediately available for comment.
It is not the first time Apple has been investigated by regulators for its role in the music business which it dominates with nearly 70 percent market share of digital music sales. Last May the Justice Department spoke with Internet companies and music labels to determine if Apple was abusing its dominant position.
(Editing by John Wallace, Phil Berlowitz)
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Sure some of that may be offset by costs associated with data centers, electronic distribution but if in this day and age it cost more to physically produce, print ,cut, ship physical media than to electronically distribute it then this world has lost all hope. The point is Apple’s cut ideally would represent some fraction of what would have been physical media costs. So what are the media companies complaining about.
So anyone know if this premise is valid?
The solution for these companies is to simply increase their subscription plans to people that access it this way and declare why. Push people off of the Apple device and show Apple that they are losing control.
The services voicing most of the concerns are those that have to pay rights/royalties to the content owners (music, video, movies, books, etc), taking only a very small margin that would be nullified by the 30% extortion rate asked by Apple. Basically being forced to sell at the same price (Apple’s rule) that outside the app minus the 30% Apple’s extortion rate would mean that they lose money when selling through their app…
The whole situation is a bit like if your service for credit card processing was overnight asking you a new price of 30% instead of the 1.5% usual price, and to “adapt” your business model to these new rules or be banned after a few months, you have invested in developing apps for that service and then have to face unwarranted, delirious and arbitrary “new rules” incompatible with your business model…
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