Rhapsody considers ‘legal response’ to Apple’s new subscription fee


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Rhapsody, a subscription music service, said today it was mulling over a possible ‘legal response’ to an announcement by Apple Inc. to charge a 30% fee on subscriptions purchased via applications sold on its iTunes platform.

The new policy, announced today, would affect not just music-subscription businesses such as Rhapsody but also news sites such as News Corp.’s the Daily and other providers of content or entertainment services that charge a recurring monthly fee.


Rhapsody, which charges $10 a month for unlimited access to a library of 10 million songs, already pays about 60% of its revenue to license the music from record labels and publishers, said Ted Cohen, a music industry analyst with TAG Strategic in Hollywood.

‘If you take away 30% of that, it leaves them with 10% to pay for the bandwidth, employees, marketing, everything,’ Cohen said. ‘Apple is taking a business that’s already operating on thin margins and driving it deep into the red. It’s wrong.’

Apple Chief Executive Steve Jobs, in a statement, explained the new fee this way: ‘Our philosophy is simple. When Apple brings a new subscriber to the app, Apple earns a 30% share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100% and Apple earns nothing.’

But that’s not how Rhapsody sees it. Jon Irwin, president of the Seattle-based music company, fired back with this statement: ‘Our philosophy is simple too. An Apple-imposed arrangement that requires us to pay 30% of our revenue to Apple, in addition to content fees that we pay to the music labels, publishers and artists, is economically untenable. The bottom line is we would not be able to offer our service through the iTunes store if subjected to Apple’s 30% monthly fee versus a typical 2.5% credit card fee.’

Irwin said Rhapsody would continue to reach out to subscribers on other smart phones, including Google’s Android phones, as well as its website.

‘In the meantime, we will be collaborating with our market peers in determining an appropriate legal and business response to this latest development,’ Irwin said.


-- Alex Pham