Apple’s New Subscription Model Is Evil

Digital subscriptions for the iPad are here. Huzzah! Sounds pretty good! You can subscribe to the New Yorker or PopSci with one click, and it’s automagically delivered. No in-app purchases; no muss, no fuss. I’ve been holding out on renewing my paper mag subscriptions, waiting for this very moment.

But it’s not all puppies and rainbows. In the press release announcing these subscriptions, there are two key sections that merit second looks.

Apple does require that if a publisher chooses to sell a digital subscription separately outside of the app, that same subscription offer must be made available, at the same price or less, to customers who wish to subscribe from within the app. In addition, publishers may no longer provide links in their apps (to a web site, for example) which allow the customer to purchase content or subscriptions outside of the app.

And then there’s:

Apple today announced a new subscription service available to all publishers of content-based apps on the App Store, including magazines, newspapers, video, music, etc.

These two sections convey three really dangerous ideas:

• If a company sells a subscription to their service or content outside of the App Store, they must offer it through Apple’s new subscription service for the same price, or cheaper.

• The subscription rules apply to more than just newspapers and magazines—they apply to music and video services too, like Rdio and Rhapsody and Netflix and Hulu Plus

• Apps that sell content through a website pop-up or link to their web store – like Amazon’s Kindle or B&N’s Nook – can’t do that anymore. Apple has confirmed separately that the new rule affects Amazon and “other booksellers” with apps for the iPhone or iPad – exactly what was indicated when Apple blocked Sony’s Reader app a few weeks ago.

Apple takes a 30 per cent cut of every transaction. In other words, Apple is eating the people that provide the things that make the iPad special.

Everybody has until June 30 to comply with the new rules, according to a memo Apple has sent to developers: “To ensure your app remains on the App Store, please submit an update that uses the In App Purchase API for purchasing content, by June 30, 2011.”

Effectively, all easy roads to getting content on the iPad now run through Apple. The Cupertino Kids present subscriptions as an equal opportunity choice for consumers: If a user snags a subscription or book through an external site, the publisher keeps 100 per cent of the revenue. Great, no problem. Apple is cool with that. But if they subscribe through the App Store, Apple keeps 30 per cent. Sounds fair, but the clutch is that even though offering in-app subscriptions is now required and apps can’t even link to the publisher’s site for the purpose of subscribing or buying content. It’s not presented to consumers as a simple A or B choice from the app itself. There is no option for publishers to say no to Apple’s terms if they want subscriptions to be available on the iPad. (And they do! PopSci’s iPad subscriptions are live now, before their external subscriptions are even ready. A steal too: $US15 for the year.)

But check it. Suppose you’ve never used Rhapsody before (or the NYT or Rdio or whatever), and you download the app. When you open the app, you need to buy a subscription. Do you:

A) Subscribe on the device, and start getting the stuff you want immediately?

or B) Wait until you go home and subscribe on your computer?

Who in their right mind is going to choose B? Publishers can’t use the allure of a lower price to entice people to put up with the extra step of registering with their computer, because Apple explicitly restricts it. Unless a user was very determined that the New York Times get 100 per cent of their money, these subscriptions are going to go through Apple. Very few people care that much though, and fewer still will understand the difference.

While newspaper publishers are locked into a Saw-esque trap for survival, Apple is outright screwing Amazon. They can’t let people buy books through their store on the iPad, and if Apple allows in-app purchasing of Kindle books, every purchase will go through Apple’s system – meaning Apple will take a 30 per cent cut on every Kindle book sold on the iPad or iPhone, basically eliminating whatever profit Amazon makes. And Amazon can’t pull out of the iOS ecosystem without breaking its central premise: the ability to read your books on basically any device out there. Amazon has gone from sort-of supporting Apple’s iPad and ecosystem in the process of building its own to being held hostage by it. Khaaaan!

Don’t think this only screws big companies like the NYT or Amazon. My favourite reading service on iOS devices by far is Instapaper, which zaps the text from basically any website to your iPhone or iPad for reading offline. I got super excited by creator Marco Arment’s plan to allow developers to create full Instapaper apps for any platform (like Android or WP7), paid for by $US1/month subscriptions. It might take money out of his pocket too.

It also goes way beyond companies that just publish words. If Apple applies the rules equally to things like music subscription services (which it implies it will in the press release), like Rdio, Pandora and Rhapsody, it could be catastrophic to these companies. Rhapsody says straight up: “an Apple-imposed arrangement that requires us to pay 30 per cent of our revenue to Apple, in addition to content fees that we pay to the music labels, publishers and artists, is economically untenable“. For those of you who don’t speak executive, that’s Rhapsody president Jon Irwin saying that his company cannot afford to offer its service under Apple’s new rules. They will leave.

And Rhapsody can’t be alone. Netflix’s Watch Instantly requires a subscription. So does Hulu Plus. Can they afford to give Apple 30 per cent of their subscription revenue? And again, according to the rules, they can’t provide users the simple choice in-app of going through their store or Apple’s. It’s not a real choice.

In technical terms, this is a dick move. Fortunately, Rhapsody is fighting back. To close his letter, Irwin states that “we will be collaborating with our market peers in determining an appropriate legal and business response to this latest development”. Here’s another, slightly related technical term: ballsy. It takes real guts to stand up to Apple on this, and we applaud the sentiment. And it will be a fight.

The fact is, that Apple’s new subscriptions – while justifiably wrapped in the smooth, glossy coat of user-friendliness – are a major power grab that inserts the company between basically every content provider and every iPad and iPhone user. You know what? That’s fine. That’s how ecosystems like this work. Think of all the products and services that exist and feed off of into Twitter and Facebook. Apple should take a cut. Just not an amount so significant it might kill the people who have helped make the iPad experience so great.

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