Apple’s 30% Toll on App Store Content

Apple's 30% Toll on App Store Content

Rumors have been rumbling since the Sony Reader app was rejected that Apple was planning on making changes to subscriptions and in-app purchases. Today, Apple fired the first shot across the bow with a press release making it clear that all subscription options must be offered as an option through iTunes (complete with a 30% cut to Apple).

Engadget is reporting that Rhapsody has already weighed in with their response, and it’s a big fat no. According to Rhapsody, 30% is simply too high to be sustainable. What’s really interesting is that in their press release Rhapsody explains they are used to (and budget for) a 2.5% charge from credit card processors. That’s a HUGE difference, and I can see why Rhapsody is looking for other options! Don’t forget, if Rhapsody is caught in this, so are Netflix and Hulu. This is an issue for all content providers offering subscriptions, not just magazines and newspapers!

Meanwhile, the Wall Street Journal has been polling law professors, and the answer seems to be mixed. Either Apple would have to prove they’re a tiny portion of the market and therefore free to set their own rules, or the content providers would have to prove Apple held a big enough portion to be influential. Since neither is likely to be a clear-cut answer, don’t expect the Dept of Justice to swing the anti-trust hammer so fast.

So it’s down to the free market. If Google, HP, and Microsoft are smart, this is their time to strike. Call up Rhapsody, call up the New York Times, and play “Let’s Make a Deal”. The amazing thing is, since Apple has opened with 30%, someone else could come in with a significantly lower number and strike a more attractive deal. If Google called Rhapsody and said they could do business for 5% or 10%, and still offer the vast Android army, Rhapsody might just say yes, where before this they would have said no. Alternately, Google and the other competitors could offer free access in exchange for some other arrangement. The point is, there are other ecosystems with other users and deep pockets to turn to, and if the competition is smart they’ll use this as the wedge they need to bring big names to their side.

Finally, the ebook angle, which gets a bit different from the streaming/subscription offerings. Apple can’t stop Amazon and B&N from selling books through Safari or on your personal computer for later reading on your iPad. Not to mention, ebook readers aren’t exactly expensive items these days. Amazon has more pricing flexibility and deeper pockets than B&N, but both could easily drop prices to the point where they’re practically giving the devices away. Even if this policy does impact ebooks, there’s more outlets and options, so the big players will be ok. It might also drive smaller stores and publishers to partner more with Amazon and B&N to leverage their wider reach and deeper pockets.

It obviously depends on how this all plays out, but here’s my final thought…just imagine the ads for the various tablets and iPod Touch alternatives that have been released so far this year. They can show how they have Rhapsody, Netflix, Kindle, etc…anyone who pulls from iOS! And even if it doesn’t get to that point, Android, WebOS, even Blackberry Playbook have no doubt suddenly started looking far more interesting to quite a few content providers!

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About the Author

Zek has been a gadget fiend for a long time, going back to their first PDA (a Palm M100). They quickly went from researching what PDA to buy to following tech news closely and keeping up with the latest and greatest stuff. They love writing about ebooks because they combine their two favorite activities; reading anything and everything, and talking about fun new tech toys. What could be better?

10 Comments on "Apple’s 30% Toll on App Store Content"

  1. I am really wondering about Apple’s strategy … they clearly had to see the backlash from providers and customers alike, so obviously there is a reason that they see superseding that … but darned if I know …

  2. Apple wants its 30% mafia style <- Works for the IRS! #fb

  3. Apple wants its 30% mafia style <- Works for the IRS! #fb

  4. Some people (Daring Fireball, for example) are reporting this as being consumer-friendly. However, I think it’s the opposite. If Netflix has to start charging the same for either subscriptions that they sell or for subscriptions that they sell through Apple, and Apple is charging a 30% fee for the transaction, this only suggests to me that Netflix will need to increase their price in order to maintain revenue.

    This is only consumer-friendly if Apple allows other application markets that compete on service price for subscription services. Without that competition, this is consumer-unfriendly.

    Also, I think in some states that Apple is not allowed to direct a vendor to price their product the same or better in their store than they do in other retail outlets (i.e., from the vendor directly.)

    If Apple was begging for an antitrust court case, I think they found a way to attract one.

    • Or, since I’m already a Netflix customer, I put in my activation code into Netflix’ (theoretical) new version, and pay Apple not a nickel. Not that I care, but Netflix gets 100% of the revenue.

      (Keep in mind this is the same Netflix that charges me more and more for less and less over the years.)

      Apple’s position is, if they bring Netflix a new customer, Apple should get a cut. If Netflix disagrees, they can say they don’t want to do business with Apple.

      Guess what. I like my phone better than I like Netflix.

  5. Apple wants to either sell you content via iTunes and iBooks, or be a tollbooth all other content must pass through. The publishers and some app developers will be able to push back and Apple may have to give way some. Notice that the new Google One Pass only asks for 10%! As for the ebook apps…

    I remember vaguely that you were dubious of Apple even allowing other bookstore apps onto the iPad. One of the reasons for this move is an attempt to get rid of competition on its own device. Apple probably realised iBooks will never get traction with superior rivals a click away. Amazon and Sony already compete directly against Apple in the digital arena, and almost certainly soon in hardware as well (rumour is strong of the coming of the Amatab and SonyPad). By the end of this year no rival ebookstores will be selling on the iPad or iPhone via apps, take that to the bank. It makes no business sense to boost rivals via your own device for free.

    It has to be said that the open Android tablets are struggling to match Apple, especially on price. Perhaps Google will come to the rescue and cultivate a truly open ecosystem. Failing that several closed systems will start to form,eg the Amazon tablet will almost certainly be closed to other music and bookstores.

    Platform plus device appears to be the victor in the ereader wars, why not tablets as well?

    • Does Amazon allow Apple or Barnes and Noble sell on their device? No? Then what’s the problem?

      If I can’t read my Amazon and B&N books on my iPhone, the iPhone is not as good of a device, so it makes sense for Apple to play (relatively) nice. But, if Apple can exact a finder’s fee for business they bring to content vendors, no skin off my nose.

      Does Barnes and Noble pass 100% of the retail sale price back to the author or publisher? Not bloody likely.

  6. Apple’s 30% Toll on App Store Content #ipad

  7. Christopher Gavula | February 16, 2011 at 9:13 pm |

    Apple’s policy for force purchases/subs through the app (or at least make an in-app version available) is not a new policy. It’s a sucky policy but it’s been here for a while. So why sue now? Because Apple decided to finally enforce it? I think the courts may frown upon that since it stood as policy for quite some time without anyone challenging it. I agree its really a bad policy and Apple is silly to push this, but content providers really should have addressed this a while ago and not waited until now, hoping that Apple would never enforce the policy.

  8. It is Apple’s ecosystem and I understand that they have to host files, maintain servers, etc but 30%? Holy crap..that’s a lot of money. That could force some content providers to choose to go elsewhere instead of paying the toll.

    Apple, don’t be greedy..

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