Federal regulators looking into legality of Apple’s App Store subscription service

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Federal regulators are probing the legality of Apple’s plan to take a 30% cut of revenue from content subscriptions sold through its App Store, according to reports.

The 30% share is the same Apple takes for music and video sales through iTunes and in Apple’s subscription model. As announced Tuesday, the Cupertino, Calif., company would apply that policy to subscriptions of digital newspapers and magazines, videos and music as long as the subscription for that content is sold through the App Store.


If a publisher of such content sells a subscription outside of Apple’s App Store, users can access it through Apps running on the iPad, iPhone and iPod Touch without giving the tech giant any cut of revenue.

‘Our philosophy is simple,’ Apple chief executive Steve Jobs said in a statement Tuesday. ‘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.’

Apple also is leaving it up to subscribers how much personal information they share with publishers, a move that is likely to make publishers unhappy, though Apple had previously shared no user personal data at all.

And many publishers aren’t excited about Apple taking a 30% cut for subscriptions sold through its system either.

According to a report from Reuters, subscription-based online music retailers such as Rhapsody and Rdio have said Apple’s rates are ‘economically untenable.’

The Department of Justice is in the ‘early stages’ of a probe into the subscription service and what it means for competition after publishers made complaints, Reuters reported. The DOJ is currently contacting both Apple and publishers, Reuters said, citing an unnamed person who is ‘familiar with the department’s procedures.’


The Wall Street Journal reported that the Federal Trade Commission is involved in the investigation as well.

Apple officials were not available for comment Friday morning.

The analyst firm Forrester has been among those arguing that Apple’s 30% plan is too high, stating that such fees should be about 5%.

Forrester chief executive George Colony said in a blog post that Apple’s iOS operating system and Google’s Android platform are ushering in a shift away from the ‘Microsoft desktop standard’ toward an ‘App Internet’ that uses the Web to power app-based experiences.

This change is ‘forever changing many, many markets’ Colony said, noting that a recent Forrester survey said 39% of tablet users spend more time using the device’s Web browser, while about 45% spend about an equal amount of time using apps and a Web browser, and 16% of users spend the majority of their time using apps.

‘These are the formative and critical moments in the development of the App Internet market -- the winners could become dominant for decades,’ he said. ‘And Apple is blowing it. It risks replaying the PC wars of the early 1980s when Microsoft welcomed everyone into their development world while Apple stayed ‘pure’ and scared away its allies.’

That decision led to Microsoft becoming the dominant PC platform; Apple could end up on the losing end of the mobile market as well if it keeps demanding such high revenue cuts, Colony said.


‘Apple has to play chess here, not checkers,’ he said. ‘It has to stay reasonable and accommodating and play for the ultimate prize -- dominance of the App Internet. If it doesn’t, we’ll look back at this moment and call it the top for Apple.’


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-- Nathan Olivarez-Giles