With Apple officially sharing the details of its new, which lays the groundwork for Apple to take a 30-percent cut from publishers who sell content within their apps, we were waiting for some reaction from content providers. Well, one, Rhapsody, has finally braved Apple's wrath and issued a statement saying Apple's new arrangement was "economically untenable." And while it didn't threaten legal action, it certainly hinted at it.
Here's the full statement from Rhapsody's President, Jon Irwin:
Rhapsody is the leading digital music subscription service in the U.S.,with 750,000 subscribers. Music fans can access the service using free apps from any Internet-connected device, be it on an Android, Sonos, Tivo, BlackBerry, iOS or personal computer. Today, Rhapsody subscriptions are available for purchase exclusively via Rhapsody.com.
Rhapsody offers a content-based subscription service that makes millions of tracks available to fans pursuant to longstanding partnerships with thousands of rights holders, all of which then distribute revenues to artists and other creators.
Our philosophy is simple too--an Apple-imposed arrangement that requires us to pay 30 percent 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 percent monthly fee vs. a typical 2.5 percent credit card fee.
We will continue to allow consumers to sign up at www.rhapsody.com from a smartphone or any other Internet access point, including the Safari browser on the iPhone and iPad. In the meantime, we will be collaborating with our market peers in determining an appropriate legal and business response to this latest development.
While Apple is reportedly giving publishers and content sellers several months (June 30) to remove any links within their apps to outside-the-App Store purchasing options, a major battle is brewing and it remains unclear just what heavyweights such as Netflix, Barnes & Noble, and Amazon, which has sold millions of e-books via its iPad and iPhone apps, will do. Under the new rules, it appears that Amazon will be forced to sell those e-books directly from the app, with Apple taking its 30 percent royalty.
For iPad-centric publications like the recently launched The Daily, Apple's 30 percent is baked into the business plan. But this probably doesn't work for many content sellers that can't afford to have those percentages skimmed off sales. Whether there's a viable workaround for companies or whether this is a negotiating tactic by Apple is unclear. But eventually this may develop into a game of chicken, with companies threatening to pull their apps from the App Store and initiate legal action while Apple continues to flex its muscles and demand what it feels is its proper due for creating a huge market. According to law professors interviewed for a Wall Street Journal article, Apple's new subscription service could draw antitrust scrutiny.
As we said, Rhapsody hasn't quite played the pull-out card yet, but it seems to be moving in that direction. Should make for an interesting few months and I'm sure we'll be writing a lot more about this growing tussle as we get closer to June.