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Summary:

Apple’s new subscription rules could seriously hurt the nascent wave of unlimited-music subscription services just as they promise to return…

Kid listening to music
photo: Dplanet

Apple’s new subscription rules could seriously hurt the nascent wave of unlimited-music subscription services just as they promise to return the music industry to growth, some fear.

“Apple just f****d over online music subs for the iPhone,” says Last.fm co-founder Richard Jones in an IRC chat.

Right now, apps from services including Spotify, Rhapsody, Last.fm and Napster can sign up new subscribers directly by linking to their mobile websites. But, from June 30, this will be banned – new mobile subs and renewals must go through iTunes Store, which will take a 30 percent cut.

“I suspect that we will fall into the 30 percent net,” the CEO of one such service, We7‘s Steve Purdham, tells paidContent.org, “- especially when we update the app for consideration; it is likely to ‘fail’ at that time.

Thirty percent share makes music subscriptions economically unviable in their current form. But, if we take some time, let the dust settle, I think we will start to see new and novel approaches to this new ‘Apple Tax’.”

It’s potentially a big blow. Spotify’s iPhone app has been “an enormous success” and has swelled the company’s premium base “by a big number”, its CEO has previously said. In fact, we would bet the majority of Spotify’s 750,000 paying subscribers did so precisely to get mobile access, and iPhone in particular. Rdio launched its iPhone app with similar ambitions on Wednesday, one day after Apple’s pronouncement.

Apple’s not stopping these services from signing up subscribers on their own websites, as long as their apps don’t link to those websites. And monthly renewals, which are generally $10, could continue being made via bank debits.

But most of these unlimited-music services, which view mobile access as their main subscriber incentive, also want to sign up new users from the apps they download, plus users could always renew a web-originated subscription via iTunes – both scenarios would give away nearly $3 of that $10.

The economics of music streaming services were already under question since these aggregators are on a short leash from their investors and from the labels who supply their content. Some now think Apple’s new requirements could hit them to breaking point, harder than providers of other content types.

“It might work for print publishers who have never managed to charge for their content online, but it’s a killer for subscription streaming services,” writes Hanchen in our comments.

“Music and video services do not have a 30 percent margin to give away to Apple (NSDQ: AAPL). It means you’ll see them exit the market on iOS devices, paving the way for Apple’s own iTunes streaming.”

G Robertson adds: “All the licensing is already in place with the labels and music publishers so the subscription services essentially have to lose money on every iPad customer or bail out and concentrate on Android et al. Rhapsody have already said the deal is ‘economically untenable’. Real shame as this market was just getting interesting for the music industry.”

Rdio CEO Drew Larner tells paidContent.org: “I would echo what the heads of some of my competing companies have said. From a financial standpoint, that fee is certainly untenable for us, that’s obvious.”

U.S. single-track sales from iTunes, the market’s largest retailer, have plateaued and record label bosses like WMG’s Edgar Bronfman Jr. are keenly anticipating the arrival of new access models like these to both give industry revenue a new boost and to provide some real competition to Apple’s dominant conventional model.

Despite persistent rumour, Apple still has not yet announced a subscription iTunes music store of its own; it’s still pursuing the single-track model that has so far proved successful. Cynics suggest it has nobbled its nascent competitors before an eventual product relaunch of its own.

The upstarts themselves must now ponder the best way to make happen the future that labels seek. But it seems the best way to minimise the blow from a 30 percent giveaway would be that they grow large enough in scale to absorb the “Apple Tax”. The services could certainly find many more users if payment is eased by iTunes’ simplicity. But it seems like a recipe for consolidation and shake-out.

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  1. Sebastien_Givry Thursday, February 17, 2011

    I find it a amazing that those companies complain. If they get traffic through their app for iOS, it’s thanks to Apple! It’s normal that they take their share just as any retailer would. If they are not happy, don’t go through the AppStore!

  2. the crapple fad will wear off and hipsters will (hopefully) realize they’re being taken for a ride. right now apple can’t see its own demise coming through its shiny piece of one way glass. all the apple people should move to a country like north korea where they can be told what to do. they would love it there.

  3. Can wait for the Apple house of cards to come falling down on Steve Jobs smug looking face.

  4. Spencer TT Chirume Thursday, February 17, 2011

    I bet the guy thinks everyone lives in the states most of the world uses youtube even soundcloud let alone iTunes, it’s a good thing.

  5. easy solution…simply go to Android and loose Apple! Apple will soon realise their ‘tax’ won’t fly!

  6. Apple is under a lot of pressure. With google you can now replace mobile me with Picasa, gMail and google calander plus google docs. I am a mobile me subscriber and I am moving to google I will not renew my subscription (even if you have to pay for extra storage it is much cheaper on google). In addition I use Spotify on my iPod touch. Even if the price went up 30% I would still pay for it. However, I am now going to buy a tablet and a laptop PC and frankly I think with Android and the google offerings there is no point to pay for over priced apple products. they are good and cool but don’t really do much more for a “normal” user than the windows 7 and android equivalent.

  7. indeed these companies should pull out of the Apple ecosystem. Apple seems to forget what’s making it so popular : its huge collection of apps. apps developed by its developers. milking your developers and consumers appears very very very greedy on apple’s part. i love spotify and would switch over to android in a heartbeat just to continue using spotify. the difference between apple and android is now very marginal and if spotify et al can work a deal to make their apps an android exclusive, we would see lots of music lovers moving over to android. don’t let apple take what’s rightfully yours. the last thing you would want to do is charge your customers more (alternatively, you could pass on this apple tax to customers who want to use the in-app subscription service. customers who subscribe from your own website can enjoy the ‘discount’)

  8. Richard Jones f**ed around with his Last.fm for a half a decade.
    Website and software has not been updated much since 2006 and has number security vulnerabilities. Did he and his associates expecting Apple sit on his bottom site too?

  9. THE BEST SOLUTION:

    CREATE TWO APPS: A Native Reader/Player App and a Web-App for Purchases.

    The Native Reader/Player App can download content stored in DropBox or upload content via iTunes Sync. There will be NO PURCHASES from the Native Reader/Player App.

    The Web-App can be downloaded directly from the Content Provider’s Web Page. Web-Apps HAVE NO LIMITATIONS from Apple. There is NO OVERSIGHT on Web-Apps from Apple.

    The Web-App allows consumers to purchase content. The content can then be transferred to the consumer’s DropBox account or downloaded into their PC.

    For example, there can be a Kindle Reader App and a Kindle Purchase Web-App.

  10. Could there be a two tier pricing structure for mobile music streaming services? One price for iOS devices to take into account the 10%, and a lower price for Android and the alternatives?

  11. Apps have benefits for both sides (Apple and Developers), Apple gave you the platform, a massive marketplace from ITunes that already existed and the phone which cost ridiculous money to develop. I don’t understand why all the complaining, developers have benefited from a free market place for years to release their Apps and build brands using Apples platform. Apple have a right to some kind of percentage, its just 30% seems excessive, but then again those subscription companies should have seen it coming from Apple. I suspect nothing less from them.

    My worry is any business strategy built around one platform like Apples is deemed to run into problems. Our strategy with Apple is to ride the high wave as long as it lasts (and use the money it generates as a surplus), but to hold Steve Jobs and his money making, consumer unfriendly gang at arms length. We don’t build our platform and attempt to grow around any one source of revenue and especially not Apples App store.

    Next they will hit retailers with the same rule you watch!

  12. Somehow, I don’t think a lot of people will care if Steve Jobs does die in a few weeks.

  13. Retail outlets generally get 50 to 60% of the price you pay for a book or cd or boxed software. 30% is not at all unreasonable. Don’t build in-app payments into your app if it hurts your bottom line. Butt simple. Link to your website instead.

  14. Never heard of Spotify, Rhapsody, Last.fm. They must have Sh*@ty music choices or they would have eclipsed iTunes and Amazon sales by now so who cares if they go under?

  15. All these companies have to do to make up the lost 30% margin is start charging for their app instead of giving it away free. I have to buy a new Sirius Satellite receiver and a new subscription if I want to listen somewhere besides my car, so the model is proven.
    I wish these clowns would just stop whining about Apple. Apple gives them nationwide advertising, a phenomenally developed distribution and marketing channel, a solid and secure platform to develop their apps on, over 100 million devices and hence a massive market share. WTF are they complaining about? Apple as single-handedly eliminate the need for any of these companies to have channel marketing, distributor relations, a sophisticated online store, etc, etc,

  16. Greg, you’ve heard of Apple, so that makes them good, right? That’s a pretty weak argument. Your second post makes more sense, though.

  17. Yet another reason not to buy apple products. (I confess, I’m a fan of Last.fm – although more the scrobbling/social-media side than the streaming)
    Greg, you might not have access to Spotify, Rhapsody or Last.fm if you’re in the US. In Europe – they’re pretty popular for music-streaming.

  18. I love Rhapsody streamed on my Droid. Well worth the $10 a month.

  19. Wonder whether this will policy will ever apply to services companies, such as Skype, Fring, Nimbuzz, Tango, Viber (when they add Viber Out) etc. Those that compete with the Mobile Network Operator (and, perhaps Apple’s own Facetime – though that remains a free service).

    Nokia eventually banned VoIP most apps from the Ovi store

  20. You guys might like to reflect that one day after the Apple announcement of a subscription service Google (Android) has done the same. The Google % is lower but then they also collect mountains of your personal and financial information and sell it to the highest bidder.

    I know which business model I am going with.

  21. People are willing to pay through the nose for a brand. Idiots.
    My boss was using his iPad yesterday and all I heard him do was b!tch while using it. But when you ask him what thinks of it he says he loves it. I think other apple fanboys are similarly brainwashed.

  22. Nobody gets traffic from Apple. Plus, retail doesn’t take 50%.

    Apple sucks!

  23. It remains to see how this all shakes out. There are clarifications to come and I am sure Apple will be speaking to their “partners”. Why don’t we all wait until the June 30 deadline and have the dust settle before making all the Apple hating remarks, which just shine an unflattering light on the writer?

  24. Jiggy Piggy Team Thursday, February 17, 2011

    And now with Verizon coming on board, millions more will be using Apple’s platform. Undeniably monopolistic and destructive to the music industry.

    Even if quick solutions to jump out of Apple and adhere to Android and other platforms may sound like a good idea, the streaming models need large customer base. The 30% fee will some how filter it’s way back to the customer and unless the customer is willing to pay more, subscriptions will deminish either fast or slowly.

  25. “People are willing to pay through the nose for a brand. Idiots.
    My boss was using his iPad yesterday and all I heard him do was b!tch while using it. But when you ask him what thinks of it he says he loves it. I think other apple fanboys are similarly brainwashed.”

    Daauurgh. I’m a fanboy (good one!). I’m brainwashed. I’m a stupid idiot, and I don’t even know it, that’s what a stupid idiot I am. I’m not nearly as awesome as NoSacredCow. If only I could be. If only everyone could be. NoSacredCow knows everything. He’s awesome beyond words.

  26. Look at Pandora as the example:

    60% of revenues to the label extortion racket
    30% of revenues to the Apple extortion racket

    That leaves 10% of revenues for those annoying little things like salaries, servers, bandwidth, rent, and paying the electricity bill.

    What does not exist in this model is actually making money. The labels and Apple are just treating music services like their whipping boys. What industry in the world is paying 90% of their revenues on content acquisition and affiliate distribution costs?

  27. Sebastien_Givry Friday, February 18, 2011

    If you all complain, it means that in the end, you really care about distributing on Apple’s AppStore and that this channel does bring you significant advantages over Android Market. Otherwhise you would have just wrote “who cares”. As many said, Apple gets its 30% share because it brings value and revenues to the publishers….

  28. If you have just one big fat apple in a barrel, sooner or later it will go rotten. Every apple goes rotten in the end. Better to have a barrel full of smaller fruits.

    If Apple make consumers pay a 30% loading – and it will be the consumers who pay – Apple will find it all comes right back right into their face. The iPhone will run with Linux and will run Android (see androidoniphone for eg). Consumers will dump the iOS and convert if they are squeezed because the business model for making competitive iPhone OS’s will become viable – plus then Flash will run (their monopolistic-motivated mistake number one).

    I cannot imagine anybody would miss using iTunes and the iStore – It is surely the most clunky user-unfriendly and unsearchable solution one could imagine. There already are alternatives, such as CopyTrans, and these products availability will grow exponentially as providers and clients realise the financial and utility advantages of getting out of the pomaceous prison.

    Apple should take care not to kill their Golden Goose. Their sales in iTunes are as a result of people who have chosen the equipment – because the equipment is good (which they are paying for) and there is ready access to a wide range of meaningful independent applications. I cannot imaging bothering to use iTunes and the iStore if I did not have Apple hardware – why would you?

    And indeed once you have decided your iPhone/Pad is better-off using alternative software – surely next time you buy a device it would not be so important that an Apple product is at the top of your shopping list at all. No no no. There are many good products out there these days.

  29. I think quite a few people are missing the most iniquitous part of the Apple deal here; its not the 30% (as a publisher you can make the business case or you can’t, but its straightforward), its that Apple insist they get the same or better pricing through iTunes as another platform. So there’s no loading a 30% “iOS surcharge” on, or anything like that. Apple are effectively taking away content owners’ rights to set pricing or offer channel-specific promotions if they want to remain on iTunes. If Wal-Mart of Tesco tried that; they’d be in front of a judge so fast it would make your head spin.

    As for those who claim retail takes more than 30% so its OK for Apple to do the same; first of all its not entirely true (retail margins on books and music are actually pretty low, games are better), and second the retailer is doing a damn site more to justify their margin that Apple does, not least the stock risk, but also marketing (Apple gives you no guaranteed promotion for your App at all) and the effort of physical distribution, Apple doesn’t even give you bandwidth, so to compare Apple’s justification for 30% when compared to retail is extremely disingenuous.

  30. The emerging generation is on the GOOGLE PHONE ANYWAY . APPLE BETTER WISE UP . WE were going to do the whole apple app dance and decided ( none too soon ) to ‘OPT-OUT’ . Thanks to my kids and ALL their friends for showing me the way . THEY ARE ALL ON THE GOOGLE formatted phones . WOW!

  31. ———-
    subscription services just as they promise to return the music industry to growth
    ==========

    no, lying to yourself is f%%king over yourself…. in NO WAY has “Music” Subscription services even had enough subscribers to scratch a fingernail of a flee in the music industry…..

    even Rhapsody is constantly losing subscribers, of the tiny few they have…..

    it is a case of “there are no drones here, move along” you can not compete in the industry because people don’t actually want to use you…. App or Subscription or not….. move along, App customers didn’t want you in the first place, try the web, if you couldn’t make it there over the last 10 years, why in the world did you think a “subscription” service for your subscription service was going to help?

    use the web for gods sake.

  32. Surely there is a huge opportunity for the newly formed Nokisoft alliance to swoop in on this mess and take advantage? Nokia, with its extensive global network of operator billing agreements, and Microsoft with potential publishing gems like Seadragon that have barely been put to use – ppublishers could push paid content way beyond the boundaries that limit Apple and Google.

    It could work, and it could work very well if the details were worked out correctly. Using the pinch to zoom on WP7 you could cram an entire publication into one 300mpx image, charging, say, 1€ for the privilege.

    I would pay.

  33. So now Android, Palm and Microsoft can market their phones as 30% cheaper to run Spotify on? If I got this correctly the price Spotify offers for subscriptions via the web must not be cheaper than subscribing via Apple. Thus to me it sounds like Spotify can charge a premium via their site and iTunes to offer the option of still using the iPhone to stream music. As is one price for iOS and a cheaper price if you don’t want the option to use an Apple devide. I could be mistaken …

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