App Store subscription policy could send apps packing while drawing lawyers

by Phil Hornshaw

A day after Apple (AAPL) released its new policy for subscription-based apps to operate in the iTunes App Store and on iOS, there’s a bit of an air of panic floating around.

Bounce around the Internet and you can read scary words from several doomsayers regarding the new restrictions. Rhapsody, it appears, isn’t going to be playing ball. Fear surrounds what could happen to streaming content from Hulu and Netflix (NFLX). E-book prices are expected to rise from Amazon (AMZN) and other booksellers. And the Wall Street Journal is already speculating that the federal government might decide to get involved.

Such widespread backlash is due to Apple’s new App Store policy for all content-providing subscription-based apps, which states that apps that provide content from an outside source must: 1.) include an in-app system for purchasing the content; 2.) offer the content at the same price or better than it’s offered through other means; 3.) not link to any other means of purchasing the content except through in-app purchase, and 4.) give Apple a 30 percent cut on any subscriptions sold through iOS apps.

Some services see that as asking a lot. While in some markets it makes sense that Apple make the demands it does -- magazines offering subscription content on the iPad, for example, are gaining subscribers because of the iPad’s availability, so Apple is getting its cut of subscriptions it made possible -- others that don’t need Apple’s help to get subscribers aren’t ready to let go of nearly a third of their revenue.

A legal response

Rhapsody is one such provider: it sells streaming music services to several different kinds of devices for a monthly subscription fee, and it already has to make its subscription prices higher on mobile devices because of licensing fees. The company claims Apple’s 30 percent tax would force it to make its subscription rates even higher.

The company issued a statement following Apple’s announcement, saying, “We will be collaborating with our market peers in determining an appropriate legal and business response to this latest development,” according to a story from Engadget.

Wait a second -- a legal response? Apparently Rhapsody thinks there could potentially be some kind lawyer showdown over the subscription issue, and it isn’t the only one.

WSJ ran a story yesterday that cited a pair of law professors specializing in antitrust cases and looked to find out if the government might make an antitrust case against Apple for the policy. It states that the major question might be whether Apple’s new restrictions constituted the company attempting to put “anti-competitive pressures on price.” First, though, a judge would have to agree that Apple is such a dominant player in the market in question -- the law professors figure it’ll be the digital media market, not, say, the tablet computing market in which this case falls -- that the company can significantly influence prices and competition through this kind of pressure.

While the Journal couldn’t get a Justice Department official to comment for the story, the conclusion of the two professors seemed to suggest that, at least for now, there isn’t much of a case. One professor did say that if the case did go to court, “Millions will be spent litigating how broad the market is.”

Content providers in the crosshairs

Meanwhile, PC World speculates that other content providers, like Hulu Plus and Netflix, are going to institute some changes by June in order to be in compliance with Apple’s new guidelines. Hulu’s $8 per month subscriptions might see more ads in the streaming TV programming it provides: Netflix and its Instant streaming movie service could bail on iOS completely rather than change its subscription model, which allows content to be streamed to a number of devices.

Amazon’s Kindle, Nook by Barnes & Noble (BKS) and other e-book sellers will likely need to raise the prices of their content in order to circumvent Apple’s 30 percent slice. Other services that provide cloud-based data storage at a monthly rate, like DropBox, might need to trade up the way they tier their payments and the amount of space they offer to off-set the big loss in revenue.

Even if some of all this potential fallout is overreaction or ends up being negotiated with Apple, it’s clear even with a cursory look at the App Store that the new content policy is going to have far-reaching effects on the iOS app environment. Rhapsody doesn’t seem long for iOS, and Netflix and Amazon could easily pick up their marbles and go home, too. And while Sony (SNE) has been talking about willingness to bring its upcoming PlayStation Suite game platform to iOS, I kind of doubt the company is going to part with that big a chunk of the money it would make from it.

Still, who knows -- 70 percent of something is still something, while 100 percent of nothing is still nothing. The line is drawn, and the future of many apps and their developers is about to change, but just how it will change remains uncertain.