Apple being scrutinized by DOJ and FTC

Faith Merino · February 18, 2011 · Short URL:

The company's new billing system is being monitored for antitrust violations

Apple's controversial new subscription service has caught the eye of the Department of Justice and the Federal Trade Commission, who are looking into the company's practices and whether they constitute antitrust violations, according to unnamed sources who spoke with the Wall Street Journal

Earlier this week, Apple announced its new subscription service for the App Store, which gives the company a 30% cut of all in-app purchases while eliminating publishers' ability to redirect users to outside purchasing platforms. The new service has sparked outrage among developers and publishers, who will now either have to take a cut themselves, pass on the 30% increase to their users, or come up with a completely new business model to work around the increase.

Of course, media companies can still sell subscriptions on their own, outside of the App Store, but users aren't likely to leave the App Store, which already has their billing information on file and wouldn't require any further work on their part. Apple's new billing system would also prohibit companies from offering better prices on their own sites, which means they can't offer their app for 30% higher via the App Store as opposed to buying directly from their website. 

This presents a particularly weighty challenge to video and music content companies, which already pay hefty fees and royalty rates to music labels and production companies. Pandora's Tim Westergren mentioned in a previous interview with VatorNews that royalty rates constitute Pandora's single biggest cost. 

Jon Irwin, president of music streaming service Rhapsody, recently voiced his outrage over the new billing system: "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."

Rhapsody currently charges users $10 a month for access to its library of 10 million songs and pays a full 60% of its revenue to music labels to license the songs. Apple's cut plus the music labels' cut leaves Rhapsody with a pitiful 10% of its own revenue to keep its business running. Irwin said that Rhapsody is considering taking legal action against Apple.

A day after Apple announced its new subscription billing system, Google announced a billing system of its own--a far cheaper one, at that--called One Pass, which will only take a 10% cut of in-app purchases. 

Image source:

Support VatorNews by Donating

Read more from our "Trends and news" series

More episodes