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Summary:

Apple’s new in-app subscription policy has drawn the attention of U.S. regulatory bodies, just as many suspected. Both the U.S. Justice Department and the Federal Trade Commission are reportedly examining the new App Store rules with the aim of determining whether they violate antitrust laws.

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Apple’s new in-app subscription policy has drawn the attention of U.S. regulatory bodies, just as many suspected. Both the U.S. Justice Department (DOJ) and the Federal Trade Commission (FTC) are reportedly examining the new App Store rules with the aim of determining whether they violate antitrust laws.

According to Bloomberg, the investigations are, for now, preliminary and exploratory, with the aim of determining whether a formal inquiry is merited at this time.  News of the investigations comes via two people familiar with the matter, who declined to be named because at this stage, the investigation is confidential.

The full details of Apple’s subscription plan were unveiled on Feb. 15. According to the deal, content providers who offer access to content within an app that can be purchased from an external website or other location, must offer the ability to purchase the same content from within the app, too, at the same price. That includes both one-time purchases and recurring subscriptions. Revenue from the sale of content and subscriptions from within the app will be split 70/30 between Apple and the content provider. Any apps that offer an in-app link to an external store from which the content may also be purchased will be rejected by Apple.

The Wall Street Journal provides some interesting perspective on the likelihood that these preliminary investigations by the DOJ and FTC will result in a full-blown inquiry. On the one hand, it suggests that there are definitely reasons to be suspicious of Apple’s actions:

“My inclination is to be suspect” about Apple’s new service, said Shubha Ghosh, an antitrust professor at the University of Wisconsin Law School. Two key questions in Mr. Ghosh’s mind: Whether Apple owns enough of a dominant position in the market to keep competitors out, and whether it is exerting “anticompetitive pressures on price.”

At the same time, there’s a question of which market will be investigated. Apple might be susceptible to investigation with regard to the tablet market, where it still holds an overwhelming share, but if the company can convince regulators that in-app subscriptions are part of the greater overall digital and print media markets, then as it stands, it would be impossible for anyone to say they have a dominant overall share, except possibly when it comes to digital music (a DOJ investigation is ongoing regarding Apple’s iTunes music store business practices). However, MacRumors points out that according to experts, “government officials may be unable to tag Apple’s commission rates as anticompetitive given a lack of benchmark standards in the market and an unwillingness to interfere in complex pricing decisions.”

Apple, no doubt, considered this before introducing the new feature, and will do its best to convince lawmakers that as it stands, there’s no cause for investigation since it doesn’t control a majority of the market at issue. My guess? We won’t see any definitive action or change in the way Apple does business resulting from this investigation for a long time to come. For now, the numbers are on the company’s side when it comes to books, magazines, newspapers and even movies, depending on how broadly you define each category.

Related content from GigaOM Pro (sub req’d):

  1. Why do people always write articles that talk about “drawing the attention” of regulators as if the entity in question was being caught smoking cigarettes out back by a teacher?

    The FTC, the DOJ and all similar agencies investigate a situation when they get a complaint. Period. To always intimate that it is the actions of the entity that “drew attention” from the government agencies is to basically misrepresent the situation. It implies that what the entity is doing is so “bad” that the government is “concerned” and willing to investigate, when in fact, most of the time it’s the entity’s *competitors* that are leading the charge.

    It might make better copy and a more dramatic situation all around, but this story and many others like it, could be better and more accurately stated as “Publishers complain to the FTC.”

  2. Philip Fiore's TechnoBlog » FTC, DoJ in “preliminary” investigation of Apple subscriptions – Ars Technica Friday, February 18, 2011

    [...] Plan Draws Interest of Federal Antitrust OfficialsTMCnetInquirer -MarketWatch -GigaOmall 1,218 news [...]

  3. Steve W, Indialantic FL Friday, February 18, 2011

    How does one get a monopoly on a service that hardly anyone is using? According to the news, only a handful of publishers are going for Apple’s subscription plan. The fact that there are no other plans does not give Apple a de facto monopoly.

    Wait… I get it!

    Apple is “monopolizing” access to customer data.

    Bad Apple!

    1. The problem isn’t Apple’s subscription policy rather, it’s that users are forced to use iTunes & the app store, therefore, they are creating an anticompetitive arena in which they have the only say as to what can make it on an iOS device.

      Think of it this way.

      1. Apple uses fear and intimidation to force their customers to use iTunes & the app store–you will void your warranty if you jailbreak and your iOS device and it may explode, etc. Yes, Apple sales people actually tell customers that if they jailbreak their device it may “explode,” the antenna may “melt,” etc. . .

      2. Leverage the “lock-in” of the customer to “extort” fees from developers and content providers. You must go through Apple to reach the customer, thus Apple is the sole gate keeper to a device that has been sold, not rented or leased, but sold outright, and nowhere in the sales is the customer told that Apple is the “sole gate keeper” to content for their device.

      Without #1, #2 would not be much of an issue. However, since they are the only source of content to an iOS device they have a “monopoly” of sorts and are doing everything they can to create a very anticompetitive environment on all iOS devices.

      If Apple allowed the end user, the person that actually purchased the device not renting the device, to decide on what app store they wanted to use then there would be no problem.

      Personally I’m amazed that a government body hasn’t step in a long time ago and told Apple that they have to allow the user to use whatever app store they want or that they must have a signed agreement from the purchaser that they are fully informed that Apple has sole stewardship over what apps and content can be used on their device. In other words–you the owner have no real say over what you can install on the device you purchase, only Apple does and you agreed to that before purchase.

    2. Apple has the right to charge what ever amount it wants for a content provider to sell his product in the App Store. What Apple doesn’t have the right to do is tell the content provider how much he can sell his product for…in the App Store or anywhere else. That’s called price fixing. And that’s what DOJ and FTC should be hauling Apple into court for.

  4. @ Mr. Bee

    The problem in this–and many other–stories about Apple, is that the people writing the news are the same people generating the news. Reports are supposed to report news and not make news; therefore, it is bad form to write, “Our high-profile media partners; including CNN Money, TheStreet.com, The New York Times, Bloomberg/BusinessWeek and Reuters; don’t like the terms of Apple’s new subscription plan, and have complained to the DOJ, the FTC, and everyone else who will listen.”

    Think about it: If a publisher has the talent to put their subscription system on the web, to avoid using iTunes; then it also has the talent to put its publication on the web, and avoid the App Store altogether.

  5. FTC Eyes Apple In-App Purchases By Children: Tech News and Analysis « Tuesday, February 22, 2011

    [...] though you can imagine Apple is in not interested in courting more regulatory scrutiny. With the FTC and Department of Justice already looking at the new subscription rules, this would seem like an easy situation to [...]

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