"Apple just f*cked over online music subscription." That's according to Richard Jones, co-founder of Last.FM in an IRC chat message. And he's not alone. Across the pond, President of music streaming service Rhapsody, Jon Irwin, has called Apple's decision on subscription fees "economically untenable" in a company press statement. Strong words in the wake of Apple and Google's decisions this week to start handling subscription-based content through iTunes and the Android Market. But what, exactly, is the problem?
Currently, apps in the App Store and the Android Market are allowed to offer subscription services where subscriptions work through external websites. For instance, if you download the Spotify music streaming app, it's for free, but to actually listen to tracks you have to sign up and pay a subscription to Spotify - usually through a mobile page hosted by the company but opened in the app. Apple's new service mean the subscriptions for services like Spotify or digital newspapers now go through iTunes by default, for which they take a cut of 30 percent. Google One Pass offers a similar, optional service, for which Google take 10 percent.
Apple subscriptions vs. Google One Pass: What you need to know
Initially, this will make little difference to users. While the consumer will still have the option of signing up for a service on its website, Apple stipulate that the price charged must be the same as charged on iTunes, and that the app cannot link to the company's own subscription page - practically much more convenient for the user, but a sizable 30% hit for the company concerned. However, a dip in profit margins creates the risk of those creating the content (be that digital newspapers, music or anything else) jacking up their prices to keep their services viable. Without such price increases, the cuts taken by Apple may see the disappearance of some services altogether, if that 30 percent take is as serious for other content producers as Jon Irwin says it is for Rhapsody.
Streaming music services have particular cause for dismay. The problem that Jones and the people at companies like Spotify, Napster, Pandora and Rhapsody' have with the new model is that handing over £3 out of the monthly £10 is simply not something they can afford to do. In the States, for instance, $10-per-month streaming service Rhapsody already pays 60 percent of its revenue to the record labels that provide it with music. That means only $1 out of every $10 subscription will ever make it into the company coffers, after Jobs and Co. have had their proposed fill.
But the issue is not limited to music streamers - iPad editions of magazines and newspapers also face the 30% fee if they want to keep their content accessible to Apple users. "The iPad currently offers far better reach than all the other tablets put together", says Mike Goldsmith, editor-in-chief of Future's iPad and tablet magazine editions, "but with hundreds of thousands apps available on the App Store, standout and any subsequent download volumes are hard to achieve. With this in mind, subscriptions are obviously desirable. However even if you do get your subscription-powered app onto someone's desktop, the current installed base plus typical app price point means revenues are still tough to nail. Considering all this, any subscription fee is never going to be welcome at this early point in the tablet lifecycle."
With Apple's service receiving such criticisms, Google is obviously keen for their service to be the polar opposite. Their own subscription service, called the Google One Pass, allows users to subscribe to content and then access it from any device using one password (hence the name). This is an obvious advantage over Apple's subscription service, which requires an Apple device to access content to which you've subscribed. The ten percent you pay is for that ability, while content creators are free to continue billing through their own external sites if they prefer.
Google's service also offers more flexibility for content creators, allowing readers to see certain content for free while holding other bits back, or allowing them to view an article a set number of times before asking them to pay for future visits. 10% is also a much more appealing number for creators of digital content looking to sell subscriptions.
According to Goldsmith, current Apple-based subscription apps raising prices or migrating to other devices is "all possible", the only certainty being that "all app publishers will be looking at their business models very closely. From a publisher's point of view, this is hardly new ground. Distribution has always had to be considered when publishing magazines - you choose where you want to be stocked based on costs involved, promotion required plus which stockists offer the best fit for your product (and thus best return on your investment). Same with tablets - we're just looking at all these variables very closely at this early stage.”
However, there may be ulterior motives in play at Apple, and there have been detractors - most prominently music industry mag Billboard's Director of Digital Content Antony Bruno - claiming that Apple may be deliberately over-pricing its subscription services to the point of untenability. There has, after all, been talk in the past of Apple rolling out its own subscription-based music service as part of its iTunes software. If that turns out to be true, in business terms pushing out a few of its well-established competitors ahead of the launch may not be such a bad thing.
In the meantime, though, Google is looking like the more appealing partner for content creators, especially with the skyrocketing popularity of its Android OS on both smartphones and tablets. What remains to be seen is whether more subscription-based digital content providers jump ship from Apple in the coming months to take up exclusive residence on the good ship Android.