Why Apple's Change of Subscription Service Rules Will Backfire, For The Users

Posted by Jeff Scott on February 16th, 2011

As we mentioned in our previous post, Apple has published changes to their agreement with developers today that require that subscription services that offer digital subscriptions outside of their apps also provide them inside the app. And any subscriptions done inside the app will be subject to the 30% fee Apple charges for items sold through iTunes. This change applies to newspaper and magazine subscriptions as well as other digital content like music and video services.

Apple feels as though they are providing lots of new users for these services and Apple wants to be compensated for that. That makes sense. They are providing a service and bringing users to these subscription services, they should be compensated. But in the end, it's going to backfire and we the users are going to lose out.

We reached out to a bunch of subscription service app developers for comment. Most are still evaluating the rule changes. Zinio and Rdio both told us that they are not commenting on the changes at this time. Rhapsody has clearly stated that they will pull out of the App Store if required to pay Apple 30%.

The real problem is that most of these service providers are providing licensed content. If you add up the licensing costs and the cost of providing the service (servers, app development, all the costs of doing business) there's rarely 30% remaining in profit for the companies involved. There's just no way that they can pay Apple 30% and still operate in the black.

To abide by these new rules, developers really have just 3 options. And in all three of these options, we the users are the real losers.

Option 1 - Pay up

Just pay the 30% for subscriptions through the app. Consider it part of the cost of acquisition for new customers. Companies aren't going to be happy to lose that revenue and in the end, will go with number 2.

Option 2 - Increase Prices

The other option is to increase prices to balance out the 30% decrease in revenue. This, of course isn't good for us, the users. It's also not good for the companies involved where low price is a big draw. Increasing prices could be done across the board or as part of a iOS-only mobile access subscription package.

For instance, Rhapsody has their streaming cost of $10 month for streaming. But what's to keep them from defining that as a service for any device other than iPhone and iPad? Then having a second offering for a streaming service to iOS devices for $15 per month.

We're already sort of seeing this from companies like Mog, the music service. They charge one amount for streaming to the desktop and another amount for streaming to the desktop and mobile.

Now, let's be clear, no one wants this to be the option. It stinks for the consumer as it adds confusion and it stinks for the companies selling the service. Not good, but seems like it will bypass the rule changes. Now, will Apple allow it, we'll have to wait until companies start testing the boundaries of the rules to see. As we know from the past, Apple has the ability to interpret their rules however they wish and change their mind at any time.

Option 3 - Pull out

The only other option is to just pull out of the App Store. Remove the app from the App Store and lose out on the exposure. Users really lose if this happens.

Option 3b - Go HTML5 / Web App

Once out of the App Store, some developers could probably forego the native app and and go web app based. No reason a music streaming service couldn't do that as most already provide this service on the desktop. But there will, at least initially, some lost functionality and confusion for users.