A View from Erica Naone

Apple's New Subscription Plan Attracts Regulator Attention

The FTC and the Department of Justice are said to have launched preliminary investigations.

  • February 18, 2011

Apple made waves earlier this week by announcing that it plans to take a 30 percent cut of subscription services, such as magazines and video, sold through the app store. The company also required that app makers sell through the app for the same price as what’s available externally—or less, and said it would not allow links within apps that take customers elsewhere to purchase subscriptions.

Perhaps unsurprisingly, the move has invited attention from regulators, including the Federal Trade Commission and the Department of Justice, who are reportedly involved in preliminary investigations.

Part of the problem seems to be the punishing 30 percent rate. Forrester Research has suggested 5 percent would be more appropriate. Carolyn Kellogg from the LA Times writes:

Whether any online retailer will settle for 5% is yet to be seen, but on Wednesday, Google made a move in that direction. In a clear effort to propose a more attractive alternative than Apple’s to publishers, the Google tablet subscription model, dubbed Google One Pass, takes a cut of 10% or less.

While magazine publishers have been making the most noise, they’re not the ones who stand to lose the most from Apple’s new rules, argues PC World’s Jared Newman:

To be honest, I’m not really concerned with newspaper and magazine publishers. … I’m more worried about existing subscription-based services such as Hulu Plus, Rdio and Pandora, all of which have grown to rely on their iOS apps for subscribers. …For services with high overhead – say, for licensing music, movies or TV shows – Apple’s new plan presents a difficult choice: Stop supporting the iPhone and iPad, or raise prices to accommodate Apple’s 30 percent cut.

The big problem is that even subscribers who aren’t using Apple products would be affected by price hikes. Services like MOG and Hulu Plus charge one price for access to all supported devices, so unless they start fragmenting their subscriptions – a highly undesirable option, I think – users of other platforms, such as Android, will feel the waves from Apple’s ecosystem.

Regardless of what’s just, the regulators aren’t likely to take the case far, according to Darrell Etherington at GigaOm:

Apple might be susceptible to investigation with regard to the tablet market, where it still holds an overwhelming share, but if the company can convince regulators that in-app subscriptions are part of the greater overall digital and print media markets, then as it stands, it would be impossible for anyone to say they have a dominant overall share, except possibly when it comes to digital music.

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