Apple's App Store subscription rules spark anti-trust concerns as developers rage
A new report claims Apple's just announced iOS App Store subscription policy may expose the company to an antitrust investigation, even as developers, publishers and distributors have responded negatively to the terms, with one company hinting at possible legal action.
After announcing App Store subscription services at a media event with News Corporation earlier this month, Apple revealed the details and terms of the new service on Tuesday. Apple's terms forbid publishers from including links to external websites to purchase content or subscriptions and require publishers to offer in-app deals equal to or better than the same deals offered outside of the app.
Apple CEO Steve Jobs explained the new subscription rules. "Our philosophy is simple ? when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing," said Jobs. "All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one-click right in the app."
Antitrust issues
According to several law professors contacted by The Wall Street Journal, Apple's new subscription service could "draw antitrust scrutiny."
Antitrust professor Shubha Ghosh told The Journal that his "inclination is to be suspect" about the new service. At stake is whether Apple has a sufficiently dominant market position to block competitors and whether it is exerting "anticompetitive pressures on price," Ghosh said.
However, proving Apple is indeed a dominant market player could be a difficult task. Publishers could claim that Apple's share of the tablet market makes its subscription service terms anticompetitive. In response, Apple could argue that the market includes all digital and print media and the disgruntled publishers are free to utilize other outlets to reach their customers.
"Millions will be spent litigating how broad the market is," said Herbert Hovenkamp, an antitrust professor at the University of Iowa College of Law, adding that the most likely definition of the market would be digital media.
Though Hovenkamp doubts Apple has enough of a dominant position in that market to prompt an antitrust investigation, he noted that if Apple reaches 60 percent or more of all digital subscriptions, "an antitrust challenge would seem feasible."
According to Ghosh, Apple could defend itself by coming up with a "business justification" for its subscription terms, as courts often look for legitimate business reasons for actions that are accused of being anticompetitive.
Developer, publisher ire
Meanwhile, initial developer, distributor and publisher response to Apple's subscription details announcement has been overwhelmingly negative, with some publishers objecting to Apple's 30 percent revenue share, while others have expressed frustration over Apple's terms that require subscriptions to be sold through Apple for the same price or less as that of third-party websites.
Digital music subscription service Rhapsody issued a statement Tuesday calling Apple's 30 percent cut of subscription revenue "economically untenable," Engadget reports.
"The bottom line is we would not be able to offer our service through the iTunes store if subjected to Apple's 30 percent monthly fee vs. a typical 2.5 percent credit card fee," the statement read.
Rhapsody also hinted at potential legal action in response to Apple's policy. "We will be collaborating with our market peers in determining an appropriate legal and business response to this latest development."
Responding to Apple's announcement, Marco Arment, creator of the popular Instapaper app, called Apple's requirement of matching subscription prices through iTunes "a huge dick move" in a post to Twitter on Tuesday.
Forbes reports that the Online Publishers Association, which includes publishers such as Time, Hearst, Conde Nast, Bloomberg and Forbes, is worried that Apple's policies don't provide sufficient flexibility for both publishers and consumers.
Apple has reportedly issued a compliance deadline of June 30 for apps already available in the iOS App Store. Earlier this month, Sony revealed that an e-reader application it had submitted to Apple's App Store had been denied, prompting speculation that Apple had changed its rules regarding in-app purchases. Apple denied the claim by saying that it was merely enforcing pre-existing guidelines.
Prior to Apple's announcement offering details of its subscription service, several consortiums of European publishers had expressed concerns over Apple's subscription service, with some publishers feeling "betrayed" by Apple's policies. Last month, Belgian economy minister Vincent Van Quickenborne requested an antitrust investigation of Apple over possible anticompetitive maneuvers in the newspaper market.
After announcing App Store subscription services at a media event with News Corporation earlier this month, Apple revealed the details and terms of the new service on Tuesday. Apple's terms forbid publishers from including links to external websites to purchase content or subscriptions and require publishers to offer in-app deals equal to or better than the same deals offered outside of the app.
Apple CEO Steve Jobs explained the new subscription rules. "Our philosophy is simple ? when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing," said Jobs. "All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one-click right in the app."
Antitrust issues
According to several law professors contacted by The Wall Street Journal, Apple's new subscription service could "draw antitrust scrutiny."
Antitrust professor Shubha Ghosh told The Journal that his "inclination is to be suspect" about the new service. At stake is whether Apple has a sufficiently dominant market position to block competitors and whether it is exerting "anticompetitive pressures on price," Ghosh said.
However, proving Apple is indeed a dominant market player could be a difficult task. Publishers could claim that Apple's share of the tablet market makes its subscription service terms anticompetitive. In response, Apple could argue that the market includes all digital and print media and the disgruntled publishers are free to utilize other outlets to reach their customers.
"Millions will be spent litigating how broad the market is," said Herbert Hovenkamp, an antitrust professor at the University of Iowa College of Law, adding that the most likely definition of the market would be digital media.
Though Hovenkamp doubts Apple has enough of a dominant position in that market to prompt an antitrust investigation, he noted that if Apple reaches 60 percent or more of all digital subscriptions, "an antitrust challenge would seem feasible."
According to Ghosh, Apple could defend itself by coming up with a "business justification" for its subscription terms, as courts often look for legitimate business reasons for actions that are accused of being anticompetitive.
Developer, publisher ire
Meanwhile, initial developer, distributor and publisher response to Apple's subscription details announcement has been overwhelmingly negative, with some publishers objecting to Apple's 30 percent revenue share, while others have expressed frustration over Apple's terms that require subscriptions to be sold through Apple for the same price or less as that of third-party websites.
Digital music subscription service Rhapsody issued a statement Tuesday calling Apple's 30 percent cut of subscription revenue "economically untenable," Engadget reports.
"The bottom line is we would not be able to offer our service through the iTunes store if subjected to Apple's 30 percent monthly fee vs. a typical 2.5 percent credit card fee," the statement read.
Rhapsody also hinted at potential legal action in response to Apple's policy. "We will be collaborating with our market peers in determining an appropriate legal and business response to this latest development."
Responding to Apple's announcement, Marco Arment, creator of the popular Instapaper app, called Apple's requirement of matching subscription prices through iTunes "a huge dick move" in a post to Twitter on Tuesday.
Forbes reports that the Online Publishers Association, which includes publishers such as Time, Hearst, Conde Nast, Bloomberg and Forbes, is worried that Apple's policies don't provide sufficient flexibility for both publishers and consumers.
Apple has reportedly issued a compliance deadline of June 30 for apps already available in the iOS App Store. Earlier this month, Sony revealed that an e-reader application it had submitted to Apple's App Store had been denied, prompting speculation that Apple had changed its rules regarding in-app purchases. Apple denied the claim by saying that it was merely enforcing pre-existing guidelines.
Prior to Apple's announcement offering details of its subscription service, several consortiums of European publishers had expressed concerns over Apple's subscription service, with some publishers feeling "betrayed" by Apple's policies. Last month, Belgian economy minister Vincent Van Quickenborne requested an antitrust investigation of Apple over possible anticompetitive maneuvers in the newspaper market.
Comments
"Our philosophy is simple ? when Apple brings a new subscriber to the app, Apple earns a 30 percent share - in perpetuity on all future revenue; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing,"
I have adding some omitted words into that press release.
YOU CAN STILL SELL YOUR STUFF HOW YOU ARE DOING IT. YOU JUST HAVE TO ADD THE OPTION OF SELLING IT THROUGH APPLE.
YOU DON'T HAVE TO SELL THINGS ON THE APP STORE. REALLY. IF YOU DON'T LIKE IT, DON'T SELL THERE.
If you want to tap into a market made by Apple, you need to give them their due.
iPhone developers think the App Store guidelines are just fine. As a consumer, to have all financial transactions go through one player just makes it easier instead of dealing with multiple sites.
Hey, sflocal, Instapaper app isn't published by a "publisher", but by a developer. Go read what he thought about the move.
This only proves what I have always suspected. Had Apple dominated the nineties, it would have been ten times worse than Microsoft's domination. Not that I liked it anyway.
Inigo Montoya: You keep using that word. I do not think it means what you think it means.
One more time publishers:
YOU CAN STILL SELL YOUR STUFF HOW YOU ARE DOING IT. YOU JUST HAVE TO ADD THE OPTION OF SELLING IT THROUGH APPLE.
YOU DON'T HAVE TO SELL THINGS ON THE APP STORE. REALLY. IF YOU DON'T LIKE IT, DON'T SELL THERE.
If you want to tap into a market made by Apple, you need to give them their due.
Yeah, and please do not be furious about all this, since you shouldaveknown better than investing your money and time in building apps for the app store, that we would make this kind of dickish moves arbitrarily and with no pre warning.
Because ah, what are 30 percent anyways? It's not as if you lost all the margins in ...? Oh, you did? Oh poor developers/publishers... so I guess you won't make it to have your shops in our app store, now will you? Oh look, our iBook app is so lonely there, and turning such a great profit! I wonder how so suddenly apple got a 100% market share in book publishing inside iOS...
It's not "Developers ire", but the publishers. Two different types of folks.
iPhone developers think the App Store guidelines are just fine. As a consumer, to have all financial transactions go through one player just makes it easier instead of dealing with multiple sites.
Devs don't have much of a choice but like it. 70% of something is better than 100% of nothing. They need Apple to get them customers. Publishers on the other hand already have customers. Would you want to give up 30% revenue on customers you already have?
In none of these conditions are consumers the benefit. You'll either pay higher prices to have content or not get content on your iDevice. I don't see why anyone would realistically support this.
I can understand Apple making money if you used their resources from their servers, but besides downloading the app, most stuff is handled by a publisher on their servers. If they wanted more money to support their ecosystem, they could not have free apps or increae the cost of the developer program. If they were breaking even before on their 30% cut on apps, surely they'd be making gobs of money when these rules go into effect.
And that shows you it's just a money grab for Apple and Apple alone.
Yeah, and please do not be furious about all this, since you shouldaveknown better than investing your money and time in building apps for the app store, that we would make this kind of dickish moves arbitrarily and with no pre warning.
Because ah, what are 30 percent anyways? It's not as if you lost all the margins in ...? Oh, you did? Oh poor developers/publishers... so I guess you won't make it to have your shops in our app store, now will you? Oh look, our iBook app is so lonely there, and turning such a great profit! I wonder how so suddenly apple got a 100% market share in book publishing inside iOS...
I agree it's not generating good-will to change the rules. And 30% sounds like a lot, whether it is or not. But people need to explain WHY it's antitrust if they're going to start screaming the word. Including the quoted professor.
That said, the app store is new territory for the tech industry. As are subscriptions. Like it or not the rules are going to change. Would they expect Apple to operate at a loss so they didn't have to change the rules?
Everyone is flinging accusations of antitrust across the Internet. Where is the monopoly? Who is the competition that's blocked by Apple demanding 30%?
Inigo Montoya: You keep using that word. I do not think it means what you think it means.
Well put.
Everything Apple brings out emotions...
Time will tell.
Say it was 15%. Within five minutes, 90% of developers would retool their app to say they were a subscription. How would you define 'subscription' so clearly that you could keep that from becoming the biggest fiasco in Apple's history? I suspect they've decided that uniformity is the way they have to go.
Simply put, most large scale businesses don't have a 30% profit margin, and even fewer would be as sustainable if they just decided to give it away to Apple.
I hate to tell you, but the margins in the real world are easily 50% at the retail level. You pay a LOT when you buy something at a retail store. This covers the rental space, staff, inventory costs, etc.
Publishers pay quite a bit to those who sell subscriptions. I dare say that it is more like 60% of a subscription is paid to the company getting the subscription, not the magazine. Just think about how you can get reasonable pricing for subscriptions through fund raisers for schools, and the school still gets a great profit.
Apple is following the market trend that bringing a customer to the table is worth 30%-50% of the sale. Seems quite reasonable if you actually understand what value they are bringing: paying customers.
The cost to get those customers with advertising, etc, is a substantial cost for businesses. With iOS apps, that cost is dramatically reduced (but you still need to advertise your app to get good penetration in the market).
What's wrong with devs/publishers upcharging an app/subscription by 30% in the App Store, but offering a coupon code on their own individual websites that discounts the purchase price (but only through them?) Then technically they would be offering the same good at the same price in the App Store, but not be taking a hit.
It doesn't have to work exactly this way, but do you see my point? And if consumers found out about this (which they certainly would), the devs/publishers wouldn't even have to have a hyperlink in their own app-- we'd find it ourselves.
Just a thought.
I agree it's not generating good-will to change the rules. And 30% sounds like a lot, whether it is or not. But people need to explain WHY it's antitrust if they're going to start screaming the word. Including the quoted professor.
That said, the app store is new territory for the tech industry. As are subscriptions. Like it or not the rules are going to change. Would they expect Apple to operate at a loss so they didn't have to change the rules?
How is Apple operating at a loss? They didn't develop the app nor the content. Android tablets could have substantial gains against the iPad if publishers put there weight behind it.
So somebody correct me here:
What's wrong with devs/publishers upcharging an app/subscription by 30% in the App Store, but offering a coupon code on their own individual websites that discounts the purchase price (but only through them?) Then technically they would be offering the same good at the same price in the App Store, but not be taking a hit.
It doesn't have to work exactly this way, but do you see my point? And if consumers found out about this (which they certainly would), the devs/publishers wouldn't even have to have a hyperlink in their own app-- we'd find it ourselves.
Just a thought.
Same or better offer for th app. It doesn' matter how you get to the lower price, if it is available on the outside site, the app price can't be higher.
These folks need to get over it. When you join the program you agree to give Apple 30%. The in app rule has been around for a while so they should have been expecting enforcement. And they also agreed that Apple can change the rules whenever they want. If they don't like the rules, get out.
Apple has tons of lawyers. If there was a real chance for anti-trust they will have already dealt with it. After all this is not the first time this has been tried since the whole store started (or even the phone for that matter)
How is Apple operating at a loss? They didn't develop the app nor the content. Android tablets could have substantial gains against the iPad if publishers put there weight behind it.
I didn't say they were operating at a loss. Just asking what if the tables were turned.
And you're right, everyone is free to go to Android and their very significant market share. Making all this antitrust talk even more senseless.
This is the problem as I see it. Say Apple thinks that taking a smaller cut would be reasonable in subscriptions. I don't know that they do. But say they did.
Say it was 15%. Within five minutes, 90% of developers would retool their app to say they were a subscription. How would you define 'subscription' so clearly that you could keep that from becoming the biggest fiasco in Apple's history? I suspect they've decided that uniformity is the way they have to go.
Highly unlikely. Their sales would be hurt significantly by a subscription model. It's easy to get someone to pay $.99 for a app but $.99 a month would be a deal breaker for most so any retooling would just be them shooting themselves in the foot.
Publishers are much better positioned to make money within the ecosystem.
Any good publication will be better off with 70% within the ecosystem than with 100% outside of the ecosystem.
The early adopters will make a killing. (Just ask News Corp)
In any case, the publishers have a choice to be in or out.
Time will tell.
First developers ought to be able to sell apps AND price them however they like both inside and outside the app store for iOS the same os OS X. I think it just ridiculous for Apple to try to control pricing in either spot. I do however think it's fair for Apple to charge whatever commission they like for sales that occur through the app stores.
Second, publishers ought to be able to sell subscriptions both inside and outside the app at whatever price they see fit. Again, I think it's fair for them to charge whatever commission they like for purchases made through the app store, although I think 30% is excessive for on ongoing model.