While the majority of yesterday’s Apple App Store subscription press release focused on the company’s new subscription purchasing system for periodicals, the company also snuck in a policy change that could impact important non-periodical apps. Coupled with an existing policy that gives Apple a 30% share of in-app purchases, the new policy forbids publishers from providing links in their apps to sell content outside the app, where Apple receives no revenue.
This language echoed an earlier statement from Apple spokesperson Trudy Miller, who in responding to the unexpected rejection of Sony’s reader application said, “We are now requiring that if an app offers 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.” While that policy appears from one perspective to be reasonable, the practical consequence is that companies are now faced with the business choice of raising their prices across the board as a way to recoup revenues lost to Apple, or cutting off support for Apple’s products and users. Under one scenario, both the company’s Apple- and non-Apple customers will pay more for their content; under the other, customers will pay the same prices but be unable to use the content on Apple’s devices.
The ramifications for traditional publishers, such as the New York Times and Time, Inc., are still being sorted out. “We have agreements with other other tablet makers on mutually beneficial business terms,” a spokesman for Time Inc. told the Wall Street Journal. “Apple’s latest announcement seems to be a step in the right direction, but it raises a lot of questions, mostly centered around consumer data, that we have to work through and agree on.” The New York Times, which has been preparing its own billing system to allow it to sell a digital subscription that includes both online and app access, said through a spokesperson that “We are working with Apple to understand how this impacts our plans, if at all.” Other companies that have not traditionally been understood as publishers, such as digital book vendors Amazon and Barnes & Noble, are being treated as publishers by the new policy and subjected to the same content-related fees and rules. iLounge reached out to both Amazon and Barnes & Noble for comment on how the policy changes might affect their e-reader apps for iOS, but had not received a response from either at the time of this article’s publication.
The impact of the change on other companies—such as those that provide subscription-based access to streaming media, like Netflix, Hulu, and Rhapsody—is even less clear. Rhapsody has already issued a statement airing its concerns over the changes, which states, “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.” The statement added that “we will be collaborating with our market peers in determining an appropriate legal and business response to this latest development.”
As a consequence of the change, Apple will likely face antitrust scrutiny over its new policy, although it remains to be seen whether its position in the market is seen as strong enough to force action, and to establish Apple’s position in the market, the market itself must be defined. While publishers might claim that Apple dominates the market for consumer tablets, and is using its position to restrict competition, Apple might define the market as including all digital and print media, suggesting that any publisher unhappy with Apple’s terms is still free to reach customers through other means. “Millions will be spent litigating how broad the market is,” Herbert Hovenkamp, an antitrust professor at the University of Iowa College of Law, told the Wall Street Journal. He also said that digital media is the most plausible market definition in this case, and that he doubts Apple currently has a sufficiently dominant position to warrant scrutiny. Should Apple reach a point where it is selling 60 percent or more of all digital subscriptions through the App Store, according to Hovenkamp, “then you might move into territory where an antitrust challenge would seem feasible.”