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Deja Vu: Feds Probe Apple
Deja Vu: Feds Probe Apple's Subscription Model

By Barry Levine
February 18, 2011 10:41AM

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Publishers angry at Apple's new subscription service are getting support from the Justice Department and the Federal Trade Commission, which are considering antitrust action. The fuss involves Apple's requirement that subscription prices in the App Store match or better prices elsewhere. Previous U.S. probes have spurred Apple to make changes.

The federal government is taking a closer look at Apple's new subscription service through its App Store. The initial investigation, as a possible antitrust action, is being undertaken by the Justice Department and the Federal Trade Commission.

According to a report in Friday's The Wall Street Journal, the central focus of the preliminary investigation is Apple's requirement that the subscription price within the App Store has to be equal to, or better than, what publishers offer on their own web sites or with other distributors. Being preliminary, the probes could later be dropped, or lead to more formal inquiries.

Google's Service

The European Union, which actively watches for monopolistic conditions, said Thursday it is "carefully monitoring the situation."

The subscription service was opened to all publishers by Apple on Tuesday, after it launched earlier this month with News Corp's iPad-only newspaper, The Daily. On Wednesday, Google announced its own subscription service within the Android Market, called Google One Pass. Google's service takes a 10 percent cut, while Apple's percentage of sales is 30 percent.

Many publishers have voiced opposition to Apple's subscription model -- and to the possibility that the Cupertino, Calif.-based company could become as dominant in e-publishing as it has in music. Since Apple's service is easy to use and the price would be at least as good as elsewhere, consumers might be drawn to subscribing through iTunes.

The service could also be used by providers of streaming and downloadable music or films, such as Rhapsody, Netflix and Hulu. Rhapsody, a music service, has indicated it might take legal action of its own. Jon Irwin, president of Rhapsody International, told the Journal that the 30 percent cut didn't "leave room for a sensible business model."

Aside from the requirement that participating publishers must offer, through Apple, at least the best deal available elsewhere, content providers are also wary about the absolute control that Apple wields on the applications that run on its mobile products. Additionally, Apple is prohibiting publishers from linking to their outside stores from within the subscription service.

'Not All Publishers Are Equal'

Apple's practices have frequently come under scrutiny from the U.S. government and the European Union, among others. In 2010, the Justice Department investigated whether Apple's position discouraged competition in the online music business, where the company has about 70 percent of all sales.

Justice also investigated whether Apple's guidelines for developers discourage the use of software from Adobe Systems, with whom Apple has had a running battle over Flash, and whether Google's ads were being hindered when shown on Apple devices. Apple made some changes in the fall to address the developer and Google issues.

Michael Gartenberg, research director at the Gartner Group, said "users don't care" about Apple's requirements or publishers' complaints. "They just want to easily purchase content," he said.

From a publishing point of view, Gartenberg noted, "not all publishers are equal." He said some will see Apple's 30 percent cut as "cheap for customer acquisition," while for others working on tight margins, 30 percent is "a shock."

He also noted that some, like Sports Illustrated, have embraced Google's subscription service, at least in part to set up a counter model to Apple.

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