Apple App Store subscription plan gouges publishers, eats their young

Somebody call the cops -- eh, antitrust authorities. Apple's subscription plan is here, and it's as bad for many, if not most, publishers as rumored. The first of several key sentences from Apple's press announcement: "Publishers may no longer provide links in their apps (to a website, for example) which allow the customer to purchase content or subscriptions outside of the app." That means you Amazon Kindle; before the announcement, all Kindle transactions took place outside the app in a web browser. This change applies to any content, but it's nestled in the subscriptions announcement.

Another piece of nastiness: "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." That rule conceptually would prevent some publishers from extending to existing customers the benefits of a free iPad subscription.

So, Apple doesn't prohibit publishers from selling subscriptions outside the app -- how could it and get anyone to offer content? But the company does fix prices. So if publisher A charges 50 bucks a year and wants to offer a holiday or school graduation promotion from its website, the deal must be offered for app subscriptions, too. Remember, Apple collects 30 percent from publishers.

No one should misunderstand other terms, as stated in Apple's press release: "Publishers can sell digital subscriptions on their websites, or can choose to provide free access to existing subscribers. Since Apple is not involved in these transactions, there is no revenue sharing or exchange of customer information with Apple." Based on the wording in context, Apple isn't saying that app subscriptions can be offered free to existing customers but that publishers can offer free subscriptions on their websites (I am asking Apple for clarification).

"Our philosophy is simple -- when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing," Apple CEO Steve Jobs, said in a statement. "All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one-click right in the app."

That "philosophy" could be considered anticompetitive. I laid out why in February 3rd post: "iPad is a devil's deal for publishers." Apple is imposing restrictions on how publishers conduct their business from a monopoly position. Apple has the leading App Store, with 300,000 applications and more than 10 billion downloads. According to IDC, iPad had 87.4 percent share of the global media tablet market in third calendar quarter 2010. That by most measures is a monopoly position. By comparison, Amazon had 41.5 percent e-reader market share in Q3, based on 1.14 million units shipped. Apple shipped 4.2 million iPads in the same quarter and 7.331 million in the one following.

The content changes and subscription rules raise two areas of potential monopoly/antitrust concern:

1. Apple is attempting, whether intentionally or not, to fix prices for all kinds of digital content, with the restriction that pricing must be the same in-app as elsewhere -- all while collecting a 30 percent cut from publishers. There's no anticompetitive problem if few publishers sign up for this devil's deal.

There's an irony here, or perhaps some payback: Music publishers effectively forced Apple to abandon its uniform pricing policy. Now it's Apple dictating pricing and more, because no matter what the publisher makes elsewhere, it will always earn less on in-app subscriptions because of Apple's cut. Mmmm, is that monopoly or Mafioso?

2. Apple's content change affecting Amazon or Barnes & Noble conceptually is an attempt to extend the tablet monopoly into the adjacent e-book reader market. E-books are available for iPad and Kindle and Barnes & Noble Nook readers; Apple has its own iBookStore that is exclusive to iOS devices. Both publishers offer readers from the App Store, which they will now either need to pull or keep at grave competitive disadvantage compared to Apple, which will make more on every book sold through the App Store; Amazon and Barnes & Noble would have to give Apple a 30 percent cut for every sale, something not required before today's announcement. The book publishers must either raise prices or suck up profits handed to Apple, should they keep their iOS apps. The maneuver could allow Apple to crush the emerging e-reader market for devices like Kindle and Nook, with price being leverage.

The deadline for complying to the subscription changes, which presumably apply to content changes, is June 30, according to a post at All Things Digital. However, earlier, some publishers put the date at April 1.

By the way, I consider Apple 2.0 Blog reporting to be fairly friendly to Apple. When a Philip Elmer-DeWitt post has headline "Steve Jobs to pubs: Our way or highway" or calls an Apple plan "as draconian as the publishers feared," something really is amiss. Hehe, perhaps more publishers will consider Android tablets now.

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