Apple Subscriptions Draw Attention From U.S. Regulators

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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.

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