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Rhapsody considers 'legal response' to Apple's new subscription fee

Rhapsody, a subscription music service, said today it was mulling over a possible "legal response" to an announcement by Apple Inc. to charge a 30% fee on subscriptions purchased via applications sold on its iTunes platform.

The new policy, announced today, would affect not just music-subscription businesses such as Rhapsody but also news sites such as News Corp.'s the Daily and other providers of content or entertainment services that charge a recurring monthly fee.

Rhapsody, which charges $10 a month for unlimited access to a library of 10 million songs, already pays about 60% of its revenue to license the music from record labels and publishers, said Ted Cohen, a music industry analyst with TAG Strategic in Hollywood.

"If you take away 30% of that, it leaves them with 10% to pay for the bandwidth, employees, marketing, everything," Cohen said. "Apple is taking a business that's already operating on thin margins and driving it deep into the red. It's wrong."

Apple Chief Executive Steve Jobs, in a statement, explained the new fee this way: "Our philosophy is simple. When Apple brings a new subscriber to the app, Apple earns a 30% share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100% and Apple earns nothing."

But that's not how Rhapsody sees it. Jon Irwin, president of the Seattle-based music company, fired back with this statement: "Our philosophy is simple too. An Apple-imposed arrangement that requires us to pay 30% 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% monthly fee versus a typical 2.5% credit card fee."

Irwin said Rhapsody would continue to reach out to subscribers on other smart phones, including Google's Android phones, as well as its website.

"In the meantime, we will be collaborating with our market peers in determining an appropriate legal and business response to this latest development," Irwin said.

-- Alex Pham





Comments () | Archives (4)

Anybody who defends Apple here clearly hasn't ever sold a product. It's not just the 30%, it's also the fact that:
- You can't sell the subscription anywhere in the world for a cheaper price
-You can't link to your own store as an alternate purchasing option.

Media companies - News, Music, and Video don't operate at margins so high that they can simply pay Apple 30% of their income. Do you want Netflix to raise their subscription fee 30% to cover Apple's tax? No. Kindle? Hulu? Rhapsody? Pandora? Wired? Sports Illustrated? Wall Street Journal?
No. It's disingenuous at best for Apple to allow for these companies to build their apps w/o this Apple subscription model only to spring it on them now. Every one of them should walk away, and unless their policy is changed, they will.

Honestly, you can't even link to your own WEB SITE? Come on Apple. This one you will absolutely lose. You can't afford to have Android run a commercial that says "Apple DOESN'T....Netflix, Pandora, Hulu, Sports Illustrated, Time Magazine, Sirius, Kindle, Rhapsody, USA Today, Wired, etc. Android Does."

If Apple's policy remains as is, this will happen.

It's not just 30% vs 2.5% - it's 30% vs 2.5% plus all the other items that go with offering your own subscription service.

Want to avoid the surcharge? Do what you do now and sell subs via your web site. Monitor how offering subs in-app affects revenue and compare to web site subs. Raise prices if necessary. And, hey, maybe see if you can do something about that 60% being charged by the music biz too now that you are able to seel more music for them?

But most of all be a business. If you do not like the model then do not use the model. Find another way or be just like the traditional media businesses that are failing to adapt.

It makes me wonder if Rhapsody or the author of this article read the entire statement and or if they had questions did they call Apple to get feedback on these concerns?

This only pertains to "in app" purchases. This DOES NOT affect purchases made from a developers web site, which Apple states is A-OK with them, like rhapsody.com. You can sign up and renew your subscriptions on rhapsody.com and simply login to the app on your iOS device. This is perfectly within the realms of the "subscription policy" Apple has implemented.

As far as I can tell, there are no "in app" purchases for Rhapsody or Kindle, all those purchases are made outside the app, not in the app.

This is one of the biggest examples of overreacting I have ever seen.

As the previous poster responds to the other commentors:

You fail to see that this is mandated by Apple; it's not like the developer can simply sell via their website. In order to have their app listed they must offer a same-price in-app subscription at which they will be charged 30%.

Reality dictates that a user is more likely to subscribe with a "Subscribe Now" then going to a website when offered, but further Apple prevents the developer from offering the choice.

"As far as I can tell, there are no "in app" purchases for Rhapsody or Kindle, all those purchases are made outside the app, not in the app. "

Apple has clarified that it is simply requiring apps that offer “customers the ability to purchase books outside of the app, that the same option is also available to customers from within the app with in-app purchase.”

Kindle redirects outside of the app to the website; by Apple's admission this means they must now offer in-app purchases for the same price. If you consider this overreacting, fine for you -- but the majority considers this douchebaggery at it's finest.


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