Apple's taking 30 percent of app store subscriptions is an unkind cut

February 19, 2011

The phrase "30 percent" now amounts to fighting words in the media and gadget industries.

That's the share of revenue Apple will keep from new subscriptions and media purchases made in an iPhone or iPad application through its App Store - part of a feature it launched Tuesday for its mobile devices.

Apple knows a thing or two about smartphones, tablets and getting users to buy things on them through its App Store. So why is this a problem?

Because Apple doesn't just want to offer the store's one-click buying as an option to companies that sell subscriptions or extra content inside programs. It will require that they add App Store transactions - and demand that they offer users the same price in the App Store and at their own Web site.

Developers have until June 30 to correct existing applications.

Further, Apple's news release spells out that an app cannot even include a link to an outside Web store. And Apple won't tell developers who their customers are unless they allow that disclosure, a move guaranteed to infuriate publishers used to knowing their readers.

Essentially, Apple proposes to annex a developer's subscription business - then charge that firm 30 percent for the privilege.

That 30 percent figure is the same share Apple keeps from sales of applications, where it provides valuable hosting services, copious bandwidth and one-click installation and updates.

But in providing subscription billing, Apple won't do much more than move money from one party to another. The fees for that sort of financial convenience, whether you conduct your transaction through PayPal or the check-cashing place a few blocks from my house, tend to be around 2 percent.

Apple cites only one exemption to this new policy: Subscriptions that come free with the purchase of something else, such as a print subscription to a newspaper.

(Web-based applications, meanwhile, remain unaffected by Apple's App Store rules.)

Remember when people in the news business were hoping that Apple was throwing them a lifesaver with the iPad? That device may look more like an anvil after this news.

The picture isn't much brighter for electronic bookstores such as Amazon's Kindle (which, coincidentally enough, competes with Apple's own iBooks). It's even worse for interactive music services, which already face tight business margins thanks to the royalties they must pay to record labels, composers and performers.

Representatives for Netflix, Hulu and The Post declined to comment. Publicists at Amazon and the Ongo news service (as well as Apple itself) have yet to reply to e-mails sent Tuesday morning.

Some publishers seem content to accept Apple's terms, factoring in the high costs of acquiring subscribers. But Time Inc., has already given up on Apple and is instead bringing publications like Sports Illustrated to Google's Android and HP's webOS.

The Rhapsody music service openly objected Wednesday, suggesting that it would yank its application from the App Store rather than submit to Apple's 30 percent tax.

Apple's main public justification for that steep rate consists of a quote from chief executive Steve Jobs in its news release: "Our philosophy is simple - when Apple brings a new subscriber to the app, Apple earns a 30 percent share."

That could be true for a small magazine publisher that few people will necessarily trust with their credit cards. But for the likes of Netflix or Amazon (or even, perhaps, The Post), Jobs's quote evokes a rooster taking credit for the sun rising.

Apple didn't have to take this route. It could have made App Store billing an option or taken a smaller share.

Google provided one example Wednesday, when it launched its own subscription feature called One Pass that takes care of billing and subscriber authentication across multiple devices. In that, Google will keep 10 percent of the proceeds.

It's difficult to regard Apple's extortionate arrangement as a benefit to anybody but Apple.

And yet since I wrote the scathing blog post this column is based on, readers have been jumping to Apple's defense. Why?

Some say that it's a free market and that companies will only charge what the market can bear. But under that logic, how can anybody ever call something overpriced? Would you accept that defense if it came from OPEC? Your cable company? This newspaper?

The other response is to say that Apple deserves to get a cut of the proceeds when somebody makes money off its platform. I know this argument well: I'm used to hearing from people in the entertainment industry who want record labels and movie studios get a cut of any possible reuse of their content.

Apple users, however, should know why it's unhealthy to bill for every last bit if they've ever used iTunes or an iPod to listen to music copied from a CD.

This statement also neglects how the efforts of third-party developers have made Apple's devices more valuable - something I believe Apple has mentioned in more than one ad.

Remember, Apple doesn't come to this debate with a history of upstanding behavior. It has repeatedly abused its oversight over the App Store - the only easy way to add third-party programs to the iPhone and iPad - to reject or evict programs for illogical, inconsistent or unfair reasons.

Apple does a lot of things better than other tech companies. I know-I've repeatedly spent my own money on its computers and software. That doesn't mean it's stopped being a for-profit company that merits reasonable skepticism from the rest of us.

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