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Feds Once Again Looking For Anticompetitive Worm In Apple

Posted  March 7, 2011

Apple has piqued the interest of antitrust enforcers – again.

The U.S. Department of Justice and Federal Trade Commission are both interested in exploring whether Apple is now running afoul of antitrust laws by funneling media companies’ customers into the payment system for its iTunes store.

In the past year, the cutting edge computer maker has triggered government scrutiny for how it hires employees, negotiates with music companies, sets requirements for the applications that run on its iPhones, iPods, and iPads, and limits access of advertisers to its devices.  Steve Jobs’ company has now riled the publishing community – and once again attracted the interest of antitrust enforcers – with a business plan that may force publishers to pay 30 percent cut of revenue from all subscriptions they sell on Apple’s mobile devices.

Apple’s new program will change how publishers of “magazines, newspapers, video, music, etc.” sell their online publications.  Publishers will now pay Apple nearly a third of the revenue earned from subscriptions that publishers sell through Apple’s application store (or “app store”).  Apple will continue to allow companies to keep all the money from subscriptions publishers sell outside of Apple’s app store.  But at the same time, if a company wants to sell subscriptions to an Apple device, the publisher must guarantee that it is offering its lowest price to consumers who use the app store.  Also, Apple will share only minimal information about subscribers, while publishers often insist that they need detailed data about the people who buy their content to market more efficiently.  According to Steve Jobs, “Our philosophy is simple – When Apple brings a new subscriber to the app, Apple earns a 30 percent share: when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing.”

Or maybe it’s not so simple.  According to Rhapsody, a music company that sells subscriptions to its iPhone app through Apple’s store, “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.”  Not content to merely complain, Rhapsody is also “collaborating with our market peers in determining an appropriate legal and business response.”

According to The Wall Street Journal, federal antitrust enforcers are also considering their options.  It is not yet clear whether the government will pursue a formal investigation, or which agency will take the lead.  Last year, the mere threat of government action prompted Apple to back down on two controversial rules.  One would have restricted which computer languages app developers can use to write computer code, and the other would have limited which mobile advertising networks could place ads on Apple’s mobile devices.

While Apple’s iPhone has only a 16 percent share of the smartphone market, its users tend to buy more applications than users of other phones.  And, at least for the moment, Apple’s iPad dominates sales of tablet computers.  But whether or not antitrust enforcers act, Apple’s announcement has already triggered at least on market response:  Google has announced that it will start its own program to sell subscriptions, for just a 10 percent cut.

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