Rhapsody scoffs at Apple’s new subscription policy, contemplates legal action

Wed, Feb 16, 2011

News, Rumors

Apple’s new in-app subscription feature is causing quite a stir. Under Apple’s recently published guidelines, if a publisher signs up a new subscriber via an iOS app, Apple gets a 30% cut – and this occurs even when the actual subscription is subsequently processed via a website and outside of the iOS ecosystem. In other words, if a customer subscription originates from an app, Apple is going to wet its beak. Not only that, but Apple’s in-app subscription rules mandate that any digital subscription publishers make available outside of the iTunes App Store must also be offered within an app for the same price or cheaper.

“Our philosophy is simple,” Steve Jobs explained in a press release.  “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.”

While some folks are praising Apple for creating what is bound to be a seamless and easy way for users to sign up for and manage subscriptions, others are chastising Apple for being greedy while some are even speculating that Apple’s new rules may run afoul of anti-trust laws. But more on that later.

Compounding matters, Apple has every intention of enforcing these new guidelines. A few weeks ago, Apple informed various publishers that current apps must comply with Apple’s new subscription policy by June 30 lest they be removed from iTunes.

And while some publishers will reluctantly agree to Apple’s terms in order to have access to millions of iTunes customers (and their credit cards), some are taking a defiant stand in opposition.

In response to Apple’s new subscription rules, the subscription-based music service Rhapsody emphatically declared that it has no intention of playing under Apple’s new rules.

Playing off of Steve Jobs’ statement above, Rhapsody explained why Apple’s app-subscription model simply isn’t economically feasible for the company.

Our philosophy is simple too – an Apple-imposed arrangement that requires us to pay 30 percent of our revenue to Apple, in addition to content fees that we pay to the music labels, publishers and artists, is economically untenable. 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.

Not only that, but Rhapsody writes that they’ll also be “collaborating with our market peers in determining an appropriate legal and business response to this latest development.”

As it stands now, Rhapsody’s business model charges users $10/month for unlimited access to over 10 million songs. It’s believed that nearly 60% of Rhapsody’s revenue goes towards paying licensing fees to both publishers and record labels. Factoring in a 30% cut to Apple for all subscriptions that originate in an app means that Rhapsody is better off avoiding iTunes subscriptions altogether.

As for anti-trust issues, it’ a bit premature to draw any conclusions but we’d wager that Apple has nothing to worry about for now. In order to establish an anti-trust claim, one would have to prove that Apple not only operates a monopoly in a specific market (say in mobile app stores) and that it leverages that dominant market position in anti-competitive fashion. Say what you will about Apple’s new policy reeking of greed, but the smartphone market is ultra-competitive and is not dominated by any one company or platform.


, ,

2 Comments For This Post

  1. gob Says:

    good – maybe this will force Rhapsody to publish an app for webOS (Palm Pre) – I love Rhapsody on my iPod touch and would love to have it on my phone too.

  2. Scoot Says:

    WOW!! You mean that lame music service still exists?

eXTReMe Tracker