New Apple App Rules Could Kill Subscription Music

image from Check and mate. There's no other way to make sense of what just happened. As far as subscription music is concerned, Apple has now cornered the king of every subscription music service. If any of them moves an inch, in any direction, Apple takes/kills their king.

Up until now, every subscription service has played a strategy game – against Apple and each other – and in a spilt second, Apple has changed the game and reminded them that it owns the board beneath them. Once Apple introduced the ability for app developers to charge for in-app content on a subscription basis and claimed rights over a 30% cut, it restructured the subscription music sector.

In the future, when fans discover MOG or Rdio in the App Store, downloads it to their iPod Touch, and tries out the service, Apple may request that companies make it so interested fans can sign up for subscriptions in-app. If they decide to become paid users in-app, Apple may require companies to let them handle the billing process. For this service, it will take a 30% cut of the profits. The logic behind this, according to CEO Steve Jobs, is that if a user has an iPod Touch and is surfing in the App Store it created, Apple deserves a cut for bringing new subscribers to those apps. Companies can still sign up users outside of their ecosystem, but the price reflected in the App Store and on their site must be the same. Over at Billboard, analyst Antony Bruno puts this into perspective.

"Now," he writes, "consider these important facts:"

– Mobile subscription services already cost twice as much as online-only subscriptions ($10 vs. $5) because the labels charge more in licensing fees for mobile streaming versus desktop streaming.

– Mobile music app providers say up to half of their subscriber base join as a result of their iPhone app.

If MOG, Spotify, or Rdio gain traction in 2011 and Apple does start taking a 30% cut of every user that signs up in-app, these services will either have to kill their iPhone app or raise the prices for their mobile app, Bruno reasons. "Either case will severely stunt growth." Subscription services can't afford to have 30% of their monthly fees go to Apple, as one anonymous source commented, because the "margins that all of us make are smaller than 30%." They argue further that if the labels don't absorb this extra cost all subscription services need to kill their apps in defense, as the main tier of their business model won't be economically viable.

And it gets worse.

"The bigger question now," Bruno proposes, "is whether this is just Apple's way of taking a cut of a business it helps create by virtue of the iPhone platform's popularity…" Or, and this is where things get interesting, "is Apple knowingly kneecapping other streaming music services in preparation to launch its own streaming music service for the iPhone in the coming months?" If Apple does take a cut from rival services, it will gain profits from all aspects of digital music.

  • If music piracy contines to thrive, Apple wins; it sells the iPod.
  • If fans buy music legally, Apple wins; it controls 66% of the market.
  • If cloud music takes off, Apple wins; it takes 30% of their rival's profits.
  • If Apple starts a subscription service, it wins; the company can position its moblie app as being the cheapest and most integrated one in the market. 

The best and/or most evil part: Apple will make money off the users that it steals from other services, since it can create a better one, and still take a lion's share of the revenues from those that don't defect – without paying a dime in licensing.

If nothing is done here and Apple does take a 30% cut and the labels don't absorb the cost, rival services can't afford to be in the App Store. Any dramatic growth would be suicide. Therefore, they will have to hike prices, making their main service less appealing to users. And yet, if they leave the App Store, it's still suicide, because half of their grow is be attributed to it. Check and mate.

Music industry meet your monopoly: Apple. The king is dead. 

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  1. Luckily there is some competition in the marketplace. Some people could leave the iPhone/iTouch/iTunes environment if the apps they like leave. While that was quite the speculative statement, it is how capitalism works.
    Also, the Apple argument is: User is surfing our store> Downloads your app b/c it was in our store> you owe us money.
    What about the flip side: We create and sell music > we offer that music in your store > User buys a device which they can use to access only your store > without our content, user would not be there > you owe us money

  2. Tyler is right. I bought an iPod Touch because of apps like Pandora, Sirius XM, and Napster plus non-music ones like the Kindle and Netflix. Without those options, what would have been the point of buying the device in the first place? With the possibility that those apps will no longer be offered, I will be considering the alternatives to Apple when it is time to buy a new device.
    I mean isn’t the real money in the hardware, not the iTunes store? I don’t get why Apple would do this to its customers. Because we’re the ones screwed if our favorite apps exit the system which is a distinct possibility going forward.

  3. Streaming services and labels should get together, call call Apple’s bluff, jump ship and setup/get behind an alternative ecosystem. As Tyler said Apple’s devices are nothing without the content and I’m sure competitors will bend over backwards to eat into Apple’s marketshare.
    But such a move would bite the hand that feeds, require bold and courageous vision, guts, and leadership – qualities seemingly in short amongst key decision makers.

  4. Android is the biggest smartphone OS in the world. Google’s offering a 10-90 split, with none of the subscription restrictions that Apple’s demanding, and far more freedom for developers.
    I think Apple’s going to back down on this one.

  5. why are you so scared. the music industry has been run by a monopoly for several years now. the music industry has SUCKED the life out of many musicians and creative people for years. i am very excited about new people running the music business and if that happens to be Apple, so be it. so don’t be scared bitches, embrace the change.

  6. Godvin, a new monopoly does not necessarily mean a better one. The digital world has created a new transparency, and Apple still finds a way to make their transparency complicated (just look at an iTunes statement).
    … besides Apples failure to negotiate any contracts, this article (on MTT) from Derek Sivers nails one particular reason Apple is something to not be excited about:

  7. Hold your horses doom and gloom. This isn’t the end. If services such MOG, Spotify, or Rdio want to sell their subscription service Apple isn’t stopping them. It’s given them the ability to either play in their sandbox or spend the marketing money to have people opt to sign up on their website to start their sub service through them. You’re slapping the 30% on this like its a tax, but if your service, app, whatever is a good enough to stand on its own, you shouldn’t be worried.
    As for everyone ganging up and jumping off of Apple App Store, I say go for it. Someone else is going to fill the void. Apple can’t force the market to change. There is no lock in when it comes to being on the AppStore. You either play by their rules or you play in the open world of the internet. The consumer will make the final decision.

  8. In response to the link that Tyler posted that no longer exists, here is a link with the info he mentions:
    I was just thinking the other day how being an unsigned artist on iTunes has really affected me. 5 years ago, it definitely legitimized me when meeting new and potential fans. Other than that it did nothing. Now there are SO many music sources and places to get music free I don’t think it matters (to someone like me at least). Is easy to see that iTunes works in conjunction with whatever big labels are willing to fork over the cash to promote their artist with iTunes. It would make sense to me that people are downloading from itunes top 40 while people with more eclectic, specific tastes go elsewhere. With the major labels hurting more and more every year and the industry becoming more of an even playing field, Apple’s decision seems more like a desperation play than anything else.
    Free album download at

  9. i do not want ANY monopolies. i am for the new paradigm that empowers artist and musicians to benefit the MOST from there art or creations, NOT the manager, lawyer, or label executive working for some corporation. Steve Jobs and Apple will be just another vehicle for the musicians to get there music DIRECTLY to the fans, and get paid
    DIRECTLY without, warner music, sony/bmg music, emi or universal.
    checkout, Douglas Rushkoffs’ book (LIFE INC.). bottom line, if you don’t see the difference between, Steve Jobs and APPLE. and the CEO’s who run the music industry, artist will always be slaves to a system setup to serve corporations. but than again some slaves did not want to leave the plantations.

  10. desperate for what? LISTEN CLOSLY, apple is in TOTAL control. i will show you desperation, a 360 deal is desperation, suing your customers is desperation. Steve Jobs and apple could have bought-out every contract and music catalog the major labels own. but why buy a dying paradigm when you can create your own. ask the group Paramore about 360 deals. stupid is, as stupid does.

  11. I don’t think this THAT big. Droids are gaining a lot of popularity and giving iPhones some real competition. A 30% commission is a bit over the top and my guess is Apple will have to lower it to meet supply and demand. They obviously can do whatever they want though…it’s their device/store, and you don’t HAVE to use it. They are only in the position to be this bold because they created a product that everyone wants. Lets not act like that is a crime.
    Ease up on the monopoly talk. The electric company is a monopoly…you generally only have one option, and it’s something you NEED to survive. There are hundreds of alternatives to an iPod/iPhone, and you can certainly live without it. Apple can do whatever they want because if you don’t like it, you have the option to go someplace else. No one is forcing you to use an iPhone.

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