‘Apple Just F****d Over Online Music Subs’

35 Comments

Credit: 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.

Check out our bestseller lists to find out the daily most popular digital content, free and paid — from iTunes and YouTube (NSDQ: GOOG) to Netflix (NSDQ: NFLX) and Kindle.

35 Comments

Thor

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 …

James

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.

honjk

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subscription services just as they promise to return the music industry to growth
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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.

V Lee V

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!

David Evans

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.

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