Apple's New Subscription Model Is Evil

Digital subscriptions for the iPad are here. Huzzah! Sounds pretty good! You can subscribe to the New Yorker or PopSci with one click, and it's automagically delivered. No in-app purchases; no muss, no fuss. I've been holding out on renewing my paper mag subscriptions, waiting for this very moment.

But it's not all puppies and rainbows. In the press release announcing these subscriptions, there are two key sections that merit second looks.

Apple does require that if a publisher chooses to sell a digital subscription separately outside of the app, that same subscription offer must be made available, at the same price or less, to customers who wish to subscribe from within the app. In addition, publishers may no longer provide links in their apps (to a web site, for example) which allow the customer to purchase content or subscriptions outside of the app.

And then there's:

Apple today announced a new subscription service available to all publishers of content-based apps on the App Store, including magazines, newspapers, video, music, etc.

These two sections convey three really dangerous ideas:

• If a company sells a subscription to their service or content outside of the App Store, they must offer it through Apple's new subscription service for the same price, or cheaper.

• The subscription rules apply to more than just newspapers and magazines—they apply to music and video services too, like Rdio and Rhapsody and Netflix and Hulu Plus

• Apps that sell content through a website pop-up or link to their web store - like Amazon's Kindle or B&N's Nook - can't do that anymore. Apple has confirmed separately that the new rule affects Amazon and "other booksellers" with apps for the iPhone or iPad - exactly what was indicated when Apple blocked Sony's Reader app a few weeks ago.

Apple takes a 30 per cent cut of every transaction. In other words, Apple is eating the people that provide the things that make the iPad special.

Everybody has until June 30 to comply with the new rules, according to a memo Apple has sent to developers: "To ensure your app remains on the App Store, please submit an update that uses the In App Purchase API for purchasing content, by June 30, 2011."

Effectively, all easy roads to getting content on the iPad now run through Apple. The Cupertino Kids present subscriptions as an equal opportunity choice for consumers: If a user snags a subscription or book through an external site, the publisher keeps 100 per cent of the revenue. Great, no problem. Apple is cool with that. But if they subscribe through the App Store, Apple keeps 30 per cent. Sounds fair, but the clutch is that even though offering in-app subscriptions is now required and apps can't even link to the publisher's site for the purpose of subscribing or buying content. It's not presented to consumers as a simple A or B choice from the app itself. There is no option for publishers to say no to Apple's terms if they want subscriptions to be available on the iPad. (And they do! PopSci's iPad subscriptions are live now, before their external subscriptions are even ready. A steal too: $US15 for the year.)

But check it. Suppose you've never used Rhapsody before (or the NYT or Rdio or whatever), and you download the app. When you open the app, you need to buy a subscription. Do you:

A) Subscribe on the device, and start getting the stuff you want immediately?

or B) Wait until you go home and subscribe on your computer?

Who in their right mind is going to choose B? Publishers can't use the allure of a lower price to entice people to put up with the extra step of registering with their computer, because Apple explicitly restricts it. Unless a user was very determined that the New York Times get 100 per cent of their money, these subscriptions are going to go through Apple. Very few people care that much though, and fewer still will understand the difference.

While newspaper publishers are locked into a Saw-esque trap for survival, Apple is outright screwing Amazon. They can't let people buy books through their store on the iPad, and if Apple allows in-app purchasing of Kindle books, every purchase will go through Apple's system - meaning Apple will take a 30 per cent cut on every Kindle book sold on the iPad or iPhone, basically eliminating whatever profit Amazon makes. And Amazon can't pull out of the iOS ecosystem without breaking its central premise: the ability to read your books on basically any device out there. Amazon has gone from sort-of supporting Apple's iPad and ecosystem in the process of building its own to being held hostage by it. Khaaaan!

Don't think this only screws big companies like the NYT or Amazon. My favourite reading service on iOS devices by far is Instapaper, which zaps the text from basically any website to your iPhone or iPad for reading offline. I got super excited by creator Marco Arment's plan to allow developers to create full Instapaper apps for any platform (like Android or WP7), paid for by $US1/month subscriptions. It might take money out of his pocket too.

It also goes way beyond companies that just publish words. If Apple applies the rules equally to things like music subscription services (which it implies it will in the press release), like Rdio, Pandora and Rhapsody, it could be catastrophic to these companies. Rhapsody says straight up: "an Apple-imposed arrangement that requires us to pay 30 per cent of our revenue to Apple, in addition to content fees that we pay to the music labels, publishers and artists, is economically untenable". For those of you who don't speak executive, that's Rhapsody president Jon Irwin saying that his company cannot afford to offer its service under Apple's new rules. They will leave.

And Rhapsody can't be alone. Netflix's Watch Instantly requires a subscription. So does Hulu Plus. Can they afford to give Apple 30 per cent of their subscription revenue? And again, according to the rules, they can't provide users the simple choice in-app of going through their store or Apple's. It's not a real choice.

In technical terms, this is a dick move. Fortunately, Rhapsody is fighting back. To close his letter, Irwin states that "we will be collaborating with our market peers in determining an appropriate legal and business response to this latest development". Here's another, slightly related technical term: ballsy. It takes real guts to stand up to Apple on this, and we applaud the sentiment. And it will be a fight.

The fact is, that Apple's new subscriptions - while justifiably wrapped in the smooth, glossy coat of user-friendliness - are a major power grab that inserts the company between basically every content provider and every iPad and iPhone user. You know what? That's fine. That's how ecosystems like this work. Think of all the products and services that exist and feed off of into Twitter and Facebook. Apple should take a cut. Just not an amount so significant it might kill the people who have helped make the iPad experience so great.


Comments

    Damn I hate Apple

      I agree 100%. I LOVE *some* of their products, but despise the company itself so much!

        It's precisely because of this sentiment that Apple gets away with what it does. People settle for the pretty phone/laptop because it's the 'safe' option, while Apple's quietly reaming you from behind.

        If people were a bit more discerning, they'd put their foot down and choose alternatives to put the fear of god back in that company, otherwise they'll continue to get away with this.

        One particularly poignant example was the iPod Touch 1st gen update which Apple wanted to charge $10 for. Enough people got pissed off enough for them to backtrack on this. The same needs to happen every time they try to pull something like this. Currently, there's no accountability from them.

        the product and the company are effectively one in the same. don't use their products if you cant deal with their rules.

      That comment pretty much sums it all up :P Hmm maybe I should stick with Android now.

    So Amazon can just charge 30% more for content bought through the app?

      Only if they raise the price on their website by that much too. Thats part of the reason this is so despicable

      "Apple does require that if a publisher chooses to sell a digital subscription separately outside of the app, that same subscription offer must be made available, at the same price or less,"

      same price or less, so if X publisher raises the price of their dollar book subscription to $1.33 per issue to combat Apples cost, they would also have to raise the price for that in THEIR online store, or risk breaching this horrible contract.

      As always, craptastic apple shoving a great big ahem up the arse of the people who support it. When will apple users realise they are being conned.

    Apple is a horrible company! All they do is fend off competitors with selfish rules, and the public barely has any idea about it, because all they know is that "oh my iPad/iPhone/MacBook is so pretty!"
    *spits*

    I feel like Apple is going to deduct 30% from my paycheck as well. Seriously whats next?
    Isn't this anti-competitor legal issue?

    "...Apple is outright screwing Amazon. They can’t let people buy books through their store on the iPad..."

    Would a book purchase even be a classed as a subscription in the first place??? I'm not saying I like the subscriptions terms, but the Apple press release says: "Publishers set the price and length of subscription (weekly, monthly, bi-monthly, quarterly, bi-yearly or yearly)."

    I don't think we know enough yet to say it affects single, one-off purchases (eg, a Kindle book), but then that may just be a future announcement.

    There is a loophole here.. for Amazon at least...
    They can sell for example (Fictional title used):
    "How to screw over your developers, for iOS"
    through Apple's subscription service and through their website.
    and
    "How to screw over your developers, for All Kindle Devices and Apps" at a 30% lower price.
    That way, iOS buyers are paying the 30% Apple tax for them..
    The "for All Kindle Devices and Apps" version would not be available for iOS buyers in-app.
    Smart iOS buyers will buy the "for All Kindle Devices and Apps" version through their computer or phone browser.
    Officially it's a different item with a different SKU, but in reality it's the same item with a different title.
    Apple may then ban the App of course, but that's sorta shooting themself (or rather their users) in the foot!

    Whilst I appreciate some of the functionality of the iPad,I do not leverage it enough to make it essential. Sure I'm sitting on the crapper right now writing this comment, but there is no reason I can't do that with any tablet.

    This type of proprietary protection is exactly the reason why subscription TV is about to go down the toilet. Apple is using new skool tech to employ old skool business practices. They may get short term gains but generation Z (or whatever we are up to) don't like being told what to do. It gets in the way of their disproportionate sense of entitlement.

    Can anyone say anti trust. removing competition is not in the best interest of the consumer.

    The ACCC has to look into this and so do the americans.

    They are in effect a monopoly with these terms and that's what Microsoft tried to do.

    So, the popularity of iPads and iPhones has been because of the great apps developed for them. Also it's been because of the great devices created by Apple. Without some of the great apps, Apple would not have been so successful and without some of the great devices the developers of the Apps would certainly not have been as successful.

    But times they are a changing, these developers can now jump to the growing community of Android users and to a lesser extent Win Mobile 7\WebOS users as the devices from these companies are on a level to Apple's. So in the short term Apple will make an extra 30% from subscriptions, but if devs jump ship, users will jump ship because their apps aren't as good. Which will equal a loss for Apple from where they are now.

    I know I'm looking on closely at the Android\WebOS tablets and seriously considering jumping instead of buying a new iPad.

    Apple, you've let yourself down.

    So Microsoft can't ship Windows with Internet Explorer in Europe but Apple get away with this sort of crap. I honestly believe that Apple are the new evil monopoly. At least in mobile.

      The tables turned, though I still think Microsoft has some evil left in them.

    What a bunch of whiners. Don't buy if you don't like. As for you MDolley, how do you have a monopoly if there are lots of competitors, with more arriving every week?

      A bunch of whiners?

      How would you like it if, say, you were in the business of selling magazines, and the NSW government told you it was slapping a 30% tax on magazine subscriptions? (Actually, they're taking 30% of the total, so it's like a 43% tax) And then told you that there was a new law that made it illegal to charge more for magazine subscriptions in NSW than any other state?

      It's so unethical & exploitative that I'll be *very* surprised if it doesn't breach some law somewhere...

        Your comparison makes no sense.

        Apple is not the government. Nobody is forcing content providers to sell content on the iPhone and iPad.

        It's basically Apple's commission for giving content providers more sales.

        How can you possibly consider that to be unethical, exploitative or illegal in the least?

          His comparison does make sense; Apple in this case is the sole gatekeeper for this particular distribution market. Like a government they control access to it.
          They aren't "giving" anyone more sales, they are charging a hefty premium for access to a market and at the same time restricting what sellers are allowed to do in other markets outside of their own.

      "In economics, a monopoly exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it" - http://en.wikipedia.org/wiki/Monopoly

      Apple are using their market position to control other businesses operate - They can not charge more via the App Store even though it costs them more.

      Imagine if this happened at your local weekend markets... The market takes 30% of your sales, but you can't charge more than you do at your own store and if you do they will not let you come to the market? It's crazy.

        MDolley and Bern - Yes, you have a point, but a monopoly also presumes there are no alternatives. Alternatives exist to the Apple system, so no-one is forced to sell their goods/put their app on Apple products. Anyone who isn't happy can do their app on Android, for example. I expect this won't satisfy you, so I await your reply.

      I agree, what a bunch of Whiners.

      Does everybody nowadays want everything for nothing? The iTunes infrastructure that Apple created cost money and time. And just like any brick and mortar store, they're justified in putting a markup on everything they sell.

      Granted it's a big markup and their risk is low as they not actually stocking anything.

      I don't think it's wrong at all for Apple to demand this, I do think they're probably asking just a little too much for their cut though.

      In any case, Apple is not asking for any cut if you are able to get your subscribers from outside their eco system. But I guess all the publishers know that most subscribers will come form within the system.

    it's as simple as this. If Apple can do it, and they'll make a ton of money, and no one will stop them, then why not. If it were your company, you'd do exactly the same. So until Apple themselves are told by someone higher than them to cease and desist, or the public stop buying their products (which aint gonna happen) they'll keep on doing it.

    I buy their products, they've always been of excellent quality compared to competitors, though I'm not a big fan of iTunes.

    Apple really is walking the line for FTC JailBait.
    The moment the FTC start pushing Apple around for this, they'll do their tried and true bait and switch... "oh... we had a change of heart, we've changed our terms, but we're keeping every penny we fleeced you for in the mean time". Just like the iOS 4.0 publishing restrictions to force developers to use their dev tools.... which you need to buy a Mac for....
    Pure. Evil.

    wow, Apple are being controlling and evil...

    I'm... I'm just... sooo surprised...

    I think for this 30% charge for content producers (newspapers & magazines) is fine: the iPad is simply bringing them new customers for existing content, and most revenue comes from the ads, not the cover/subscription price. For content "resellers", like Amazon, it is of course impossible: 30% of the cover price for a book is likely more than their profit on most titles, so selling "in App" won't be viable. I don't believe they are required to sell through the app though (since these aren't subscriptions). So the Kindle App will just be a passive reader for content purchased via a browser ... they just need to create a iPad/iPhone friendly site, and I think people will figure out how to get there without any "in App link" ;-). No need to do this from their PC later, or anything.

    This is why im glad i have my "Portable train wreck" Galaxy Tab. I have only used my iphone for calls, sms and plants vs zombies since i got the Tab, and as soon as PvZ comes out for android... Long live open(ish) markets!

    OI NYT! and any other companies that have this problem. here is your solution.

    make all subscriptions for apple devices 30% more expensive to compensate.

    this will have 2 effects first you can keep selling your subscriptions at the same price on android and WP7 therefore causeing apple to loose buisness as people realise that the new android tabs that are about to come out are better value for money.
    2. itll alow you to go "we are very sorry but apple is charging us 30% to sell you this content and we have no choice but to pass it onto the consumer" so people will bitch at apple instead and apple will have to deal with it.

      i say this purely cause nowhere in apples statement does it say that the subscription for apple devices must be the same or less then subscription on other media (IE printed or on pc or other electronic devices) only that if you sell the subscription for apple devices elsewhere must it be equal to or more then the app store price. therefore if you create a completely seperate subscrition for apple devices or even one where you have to pay an extra amount for your subscription to be unlocked on apple devies your essentially returning the kick in the nuts back apples way.

    So if companies don't have at least the 30% profit margin to sell their product through Apple, but they see that this is the biggest market and decide to cut their margin to a degree...........prices for everything rise.

    Companies may say "better to list through Apple at a higher sale price, plus we increase our price to all other channels" Our customers wont have a choice anyway! Sell through Apple for little margin w high volume, sell through XYZ low volume massive margin (due to the inflated 43% increase in price)

    The Winners, definitely Apple and possible every company that uses their distribution channel as they have raised their prices to all alternate channels plus still making a potentially smaller margin through Apple by raising the price of the item.

    The Losers .....all of us paying potentially 43% more for everything we buy through the Apple channel and every other channel for that matter, due to the restrictions that no other channel can sell for a lower price.

    ....we lose

    Its a forced Apple TAX with the TAX revenue either going to Apple or to every developer that has raised its price to for sale to XYZ distribution channel.

    This will be very interesting to watch develop over the coming weeks and months. To look at this from Apple's perspective for a moment. They are probably feeling exploite (I know, poor Apple) because developers have become cluey. If Apple doesn't make a move like this or similar, developers will only ever make free apps and sell all their content outside the store, potentially even games could do this I guess. And what does Apple get for it? Nothing. But they are managing the store, advertising, creating a unified, whole market. There has to be something in it for them, 30% seems a bit rich to me though. Maybe they're practicing that business rule of 'always make your first offer higher'. When it gets negotiated down, they'll still win.

    I also have to say I am impressed, surprised and dumbfounded that Apple has made it so far in their most obvious tactic to become a media company. This may now be the point at which other media companies wake up to themselves and begin to take back some of the power they have given Apple over the last several years.

    To finish, a quote I read today related to this. A pig gets fat, a hog gets slaughtered.

    Apple provides a platform for content providers to sell content.

    Those on-device sales are sales the provider wouldn't have had without Apple's platform, therefore Apple deserves to be compensated.

    If a provider does advertising and promotion to encourage consumers to purchase their content from a website, then Apple is fine with that and won't take a cut.

    How can anyone consider such a fair exchange to be "evil"?

      30% is a huge percentage, especially if the developer profit margins are already razor thin. Apple's now coming off as an aggressive loan shark who's going to break a few legs to get his percentage.

      They're already being well-compensated from regular app sales and since they themselves don't foot the development cost, it costs them next to nothing for server expenses etc. This is on top of the healthy profit margins from 'apple tax.' 30% is just Greed with a capital G.

    I think we are missing some comment from HP... If they are introducing a new (lets look for the right buzzword here) ecosystem , what advantages are they going to give developers for subsciption purchasing over Apple. They need to be a bit more out there like Google is. It severely pisses me off that they ignore our market with the hardware product, however, they ignore everyone with their lack of information about the WebOS webstore and feed us that in trickles.

    No in-app purchases for me. Screw the convenience. Apple got my money for the ipod, I do my best to avoid giving them money for other people's content. (I'll always buy a CD in preference to tracks on iTunes.)

    This is really horrible news for me as a consumer. I don't think 30% is too much for in-app subscriptions, but it's the terms and conditions attached which make it mandatory that will reduce competition in the marketplace.

    In the end, if I want Kindle books, or any other kind of media on my iPhone, I'm going to have to carry a non-Apple tablet to get it and I don't want to.

    In trying to decide on an iPhone/iPad combo or Android phone/tablet combo... this article is helping decide.

    If blackberry would give up their antiquated architecture and license activesynch it would be a non issue.

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