Apple's new subscription service sparks antitrust inquiries

Publishers that sell content through apps for the iPad, above, or iPhone must pay a 30 percent cut to Apple and adhere to sales rules.
Publishers that sell content through apps for the iPad, above, or iPhone must pay a 30 percent cut to Apple and adhere to sales rules. (Marcio Jose Sanchez)

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Washington Post Staff Writer
Saturday, February 19, 2011

On Thursday night, Apple chief executive Steve Jobs dined with President Obama along with other technology titans in the Bay Area. The same night, word leaked to the media that Jobs's company was under scrutiny from federal antitrust regulators.

Apple's new subscription service for the iPad and iPhone has triggered parallel inquiries by the Justice Department and Federal Trade Commission, a federal official said.

Details about the controversial service were unveiled this week: Publishers that sell content on an iPad or iPhone app have to give a 30 percent cut to Apple. The rules also prohibit companies from allowing customers to go directly from the app to the company's Web site, where they might find better deals. If publishers don't abide by the rules, they can't have any offerings in the app store.

A federal official confirmed to The Washington Post that the government is looking at Apple's subscription service terms for potential antitrust issues but said there is no formal investigation. Speaking on the condition of anonymity because he was not authorized to comment publicly, the official said that the government routinely tracks new commercial initiatives influencing markets.

The European Commission said it has also been eyeing Apple's pricing program and its impact on music, and newspaper and magazine publishers. A European Commission spokesman said concerns about Apple's policies were raised last week in the European Parliament, and that the body's antitrust chief released a statement saying that the commission was "following the developments regarding Apple's commercial policies."

An Apple spokesman, Tom Neumayr, declined to comment, as did an FTC spokeswoman. A Justice Department spokesman did not return a phone call. The inquiries were first reported by the Wall Street Journal.

Shortly after Apple announced its service this week, Google publicized details of its One Pass program, which will only take 10 percent of a publisher's revenue and allow a newspaper, magazine or digital music provider, for instance, to retain control over the customer data.

John Sturm, the Newspaper Association of America's chief, said his organization had been pressing FTC officials in recent months to examine Apple's resistance to sharing customer data with publishers and the potential that its revenue-sharing agreement would harm newspapers or other content providers.

"We've had some conversations recently and even further in the past with folks at the FTC, and we were pleasantly informed to find out this morning that there is some preliminary review going on," he said. "Clearly the revenue share is problematic. Within 24 hours of Apple's official announcement came a Google announcement that they were going to do this at 10 percent. That was illuminating."

In Washington, one prominent antitrust attorney who did not want to be named because he might be involved in potential litigation or inquiries related to Apple, said federal investigators will have to examine several factors. "Does Apple have some kind of market power? Is there a market in which it's got a substantial market share - 50, 60, 70, 80 percent? If so, is it abusing it?" he said.

If authorities decide to pursue a full-fledged investigation, then the Justice Department and FTC will figure out which agency is better suited to handle the case alone. "The fact that both agencies are looking a little bit into this might mean that Apple may well need to reconsider what it's up to," he said.

© 2011 The Washington Post Company

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