

Rhapsody passes on Apple's "economically untenable" sub plans - msabalau
http://technologizer.com/2011/02/15/rhapsody-iphone/

======
ghshephard
I've just realized what Apple is up to here - it took me a day, and some of
the excellent comments on HN - but I now get it.

My inability to see what was going on, was that I couldn't see how
Netflix/Amazon/Rhapsody/etc... could operate, profitably, under this plan. The
30% cut would eat their entire margin (and more).

And the plan is brutally straightforward and honest, if you just mediate on it
for a few days.

Apple isn't interested in hosting Amazon Kindle, Netflix, Pandora, Rhapsody,
or _any_ of the middlemen that have been selling their content on the iPad.
Effective today - those sellers no longer have a business model. They are
middlemen, and, in fact, they'll need to seek other pastures to sell their
wares. They will all be removed from the ipad with 3-6 months. Gone.

So - what will replace them - well, let's see what's leaving:

    
    
      o Music -  Itunes
      o Movies - Itunes
      o TV Shows - Itunes
      o Books - iBooks
    

This is the master plan, and I'm surprised we didn't realize it immediately.
Apple will get their 30%, because _they_ will be the platform providing this
content, NOT netflix/rhapsody/Pandora/Amazon.

I suspect all of those vendors realized this in about 5 minutes, much faster
than us "Customers."

Apple is going for the whole enchilada, and will henceforth be dealing
directly with the publishers, labels, and studios.

What's staying?

    
    
      o App Developers
      o Newspapers
      o Magazines
    

Basically, anybody who creates _original_ content, will be okay with the 30%
cut (they already pay that much or more through other channels), though they
may gripe a little at the lack of customer information (That's the bone that
Apple tossed in todays release - the "option" for customers to let the
publishers know their user information.)

This is nothing more, or less, than the continuation of the Apple "Walled
Garden" philosophy, where Apple is able to control the entire experience. Jeff
Bezos realized this when he ensured that Amazon had a platform of their own to
deliver content to the customer.

It's customer centric, and, if they pull it off (With a good streaming, book
reading, and content delivery platform) - brilliant.

I have a huge investment in the Kindle, and it's books - so I'm still unclear
on how I'm going to respond as a customer. I would have _never_ purchased a
book through iBooks (I like the ability to read books on my e-ink Kindle, and
Apple has no comparable platform, yet). I also have both an extensive list of
cultivated Pandora Stations, and, have a Netflix AND Hulu Plus account - all
of which I'm going to lose on the iPad. If Apple doesn't come up with a
compelling alternative for me - I'll actually consider an Android Tablet.
They'll be able to replace Netflix, and Pandora, I'm certain - but I do love
my Kindle(s) - so, I don't know what my next step is going to be.

What I _do_ know is Apple has unambiguously signaled what they will be doing.
They don't have a great streaming solution yet, for music, or movies. So they
have some gaps in their portfolio of offerings - if I'm correct, we'll see a
Netflix and Pandora competitive application being offered fairly quickly -
possibly in the next release of IOS.

~~~
eavc
"It's customer centric, and, if they pull it off (With a good streaming, book
reading, and content delivery platform) - brilliant."

I don't see how this is customer-centric in the traditional idea of the term
at all. Customers want to be able to listen to Pandora and sync with their
Kindle. Customers do not want restrictive DRM and policies that lock them into
a given company for eternity.

I thought we were headed in a more open direction regarding the ownership of
digital property. Thank goodness for Android.

~~~
evgen
_We_ want to be able to listen to Pandora and sync with our Kindle to read
e-books. The vast majority of the iOS userbase just want to listen to music
and read e-books and do not care as much about what delivery mechanism
provides the content. As much as I hate to admit it, they are not really going
to miss Pandora or the Kindle app as much as we might like to hope. [For
future reference, try not to use the Kindle as a counter-example when talking
about restrictive DRM and walled gardens, it may be possible to remove the DRM
but pretending it is not there in the first place isn't really honest...]

~~~
kemayo
It is important to draw a distinction between "the Kindle" (the hardware
device sold by Amazon) and the "Kindle Store" (Amazon's e-book sales
platform).

The Kindle Store, yes, is all about the DRM. And it's the "platform" accessed
by the Kindle app on assorted devices.

However, if you're talking about the hardware device then it's entirely
reasonable to ignore the DRM issue. You plug it into your computer and it
mounts as a USB drive, onto which you can drop books in a variety of non-DRM'd
formats (annoyingly not ePub). You can purchase said books from a variety of
vendors who are happy to sell you non-DRM-encumbered products.

Amazon obviously _really_ wants you to use these two things together, and the
Kindle (device) is well set up to work with the Kindle Store. But they're not
forcing you to use only their DRM with the hardware you bought.

~~~
elai
The iPad also displays and sync ePubs with no DRM with iTunes, same as the
kindle.

~~~
kemayo
Yeah, I didn't want to imply that iOS was forcing DRM on people. I just see
the argument that the Kindle == DRM far too much, and wanted to correct it. :)

------
trotsky
_In the meantime, we will be collaborating with our market peers in
determining an appropriate legal and business response to this latest
development._

Eurozone based content rights holders such as Spotify, Vivendi and Amazon
should take this to the Directorate General for Competition. iTunes music
enjoys a dominant position in online music sales. ITMS operates on only ~15%
net margins [1] the other ~15% attributed to marketing, R&D, bandwidth,
support etc. App store or video margins should be even lower due to increased
bandwidth, hosting costs, editorial review, etc. Clearly Apple's own content
businesses would be unsustainable or would constitute dumping if forced to pay
their public rate card for the payment platform.

Traditional remedies like content divestiture or substantial regulatory
oversight could stifle innovation and raise consumer costs.

Instead:

    
    
      - Allow end-users to specify an alternative root trust authority.
      - Unbundle application signing from packaging, allowing N signers per binary
      - Allow application side loading.
    

Effectively this would allow a competitor like Amazon to sidestep Apple
requirements but only if they were willing to provide the entire
infrastructure - payments, app store, bandwidth, support etc. Other root
authorities could potentially be an open industry alliance, a privacy
organizations like EFF, FOSS signers like FSF, code auditors like OBSD,
security firms like Kaspersky or Secunia etc.

Apple as an apple signer would be able to continue to select and sign
applications arbitrarily to maintain a high user experience, mandate platform
changes, provide preferential payment terms to in house content businesses and
avoid breaking out detailed incomes and revenues in public.

Competitors would gain a plan of last resort to split from the ecosystem if
the only alternative is exiting the platform entirely.

Consumers would gain from competition driving down margins and overhead,
alternative signing would discourage consumer unfriendly behavior by trust
authorities.

Simple to enforce, easy to implement, solves competition concerns even in
markets that haven't developed yet.

[1] [http://seekingalpha.com/article/90735-how-much-will-the-
app-...](http://seekingalpha.com/article/90735-how-much-will-the-app-store-
contribute-to-apple-8217-s-bottom-line)

------
zach
Of course Rhapsody can't sell their stuff for a 30% margin. It's not their own
stuff!

They're trying to be the last link in a chain of 90/10 (or more) splits. They
repackage record labels' repackaging of artists' content. Do you think the
artists would find 30% economically untenable?

The App Store is 70/30 because Apple can take things straight from content
producer to customer. When the Apple takes the place of publishing,
distribution, inventory, sales, payments and shipping, there's real value for
that 30%.

When all someone wants out of Apple is merely to process the payment and send
things down the pipe, gee, who do they think they are? But that's not what
Apple is actually holding themselves out as. Apple doesn't want to be in that
kind of commodity market anyway. Seems reasonable to me.

~~~
akashs
Apple's argument is that they deserve 30% of all revenue streams for getting a
customer on board. For 30% of revenues, you could hire a true sales force that
goes out and actively sells stuff, rather than just sitting back and hoping
someone signs up. In the App store model, you still need to sell on your own,
Apple just centralizes payment and distribution. Thus, I'm not sure I follow
your logic.

Payments: Visa, Paypal, Amex, MasterCard, and many others would gladly handle
the payments for ~2%. Not sure where you're getting anything about inventory
and shipping given it's digital content. Sales: when did actually do any
selling for anyone's product other than when it was mutually beneficial? You
still need to sell it to people to actually use your product. Publishing:
again, what is apple doing here? Distribution and a little bit of marketing,
sure - but that's certainly not worth the other 28% of revenues.

Also don't see why Rhapsody repackaging stuff makes it any different.
Shouldn't a true app store model work for any type of business?

~~~
jfb
I think you overstate the willingness of existing payment processors to deal
with, say, .99$ purchases (they likely won't bother). I'm not arguing that
Apple's providing a service that's worth 30% to everybody, but building a
payment processing system to handle sub-$1 charges cost-effictively isn't
trivial -- and if you're not in the business of building payment processing
systems, you might just pay the rent. Amazon could handle rolling their own;
Packt probably can't.

~~~
timmaah
They would bother if they could get 30 cents on the dollar instead of their
measly 2

------
cageface
It's deeply disturbing that the people at Apple feel entitled to radically
change the rules of the game whenever it suits them. This is like an extortion
racket. Submit to their demands today only to find out what new whim strikes
them tomorrow. How can iOS legitimately be called a "platform" when Apple
pulls a leg out from under it every six months?

Thank god Android scares them. I can only imagine what they'd dare without any
competition.

~~~
gvb
See Tim Bray's essay, which _should_ be titled "Are You a Sharecropper?"
[http://www.tbray.org/ongoing/When/200x/2003/07/12/WebsThePla...](http://www.tbray.org/ongoing/When/200x/2003/07/12/WebsThePlace)

tl;dr: "[Apple] owns the ground you’re building on, and if they decide they
don’t like you, or they can do something better with the ground, you’re
toast." In this case, if they decide the rent covers your garden plot as well
as the fields, you ante up or die.

~~~
cosmicray
Apple owns a very fertile piece of soil. You can grow 10x the crop there that
you can grown any where else. Where do you want to farm your crop ?

~~~
joe_the_user
Ah yes...

 _"Apple owns a very fertile piece of soil. You can grow 10x the crop there
that you can grown any where else."_

And they can change your rent to 11x normal - just before you sell your
crops...

 _"Where do you want to farm your crop ?"_

Go question but it is actually a real question, not a rhetorical question...
Do you want to a _golden share cropper_ or do you want to be independent.
There may be no easy answer...

~~~
loewenskind
Simple solution: sell your crops where it is most profitable. Maybe with 11x
normal it's still worth it. As soon as it's not, you switch.

------
ajg1977
What's going to get really interesting is seeing where Apple draw the line
with "subscription apps".

The Rhapsody and Magazine apps of this world seem fairly clear cut. Kindle is
somewhat less so (since books aren't a subscription service - something most
blogs seem to miss). But what about these "Go to my PC", Salesforce.com, or
other SaaS sites that basically provide free iOS apps for expensive
subscription plans? Are these companies now all going to start adding in-app
sign-up options and paying Apple a cut?

~~~
minalecs
amazon offers magazine subscription for kindle. Besides, I think Apple has
been known to ignore or allow exceptions. For these SAAS companies, I imagine
Apple will allow them to slide, but by their own terms.. it sounds like they
shouldn't. I think their only main concerns are profiting from companies that
compete directly with Apple revenue streams, music, movies, and books.

~~~
jcurbo
Kindle magazine subscriptions are only available for the Kindle hardware
itself, IIRC.

~~~
nedrichards
They are now offered in the Android Kindle application as well.

------
saturdaysaint
I'm not happy to have predicted this in comments early today: (some slight
paraphrasing)

The current state of affairs - where Apple provides a nice sales channel
(marketing in a sense) on their already highly profitable devices and where
service providers bring attractive service to the platform - is a fairly even
trade. Apple is asking for such a drastic renegotiation of this "trade
balance" that I predict services will need to reprice for iOS or abandon the
platform. Content services are already struggling enough - and Apple has too
many viable competitors! - for me to imagine them simply submitting. Sony's
withdrawal of their app was the writing on the wall, I'm afraid.

~~~
rst
They're not allowed to reprice for iOS, unless they also reprice for all their
other platforms. Quoting the Apple announcement[1], "we require ... that, if a
publisher is making a subscription offer outside of the app, the same (or
better) offer be made inside the app."

[1] <http://www.apple.com/pr/library/2011/02/15appstore.html>

~~~
saturdaysaint
I think it would follow the letter of these rules if service-providers made
"with iOS" versions of their services available - both on their website and
in-app. So Rhapsody could say their service is $10/mo for everybody... except
if you want iOS access, in which case you pay $13/mo.

------
jasonjei
Just curious: shouldn't Netflix be worried? This entitles Apple, Inc. to not
only Rhapsody's income, but also to 30% of the income from Netflix's streaming
only plan. Presumably, this policy would also affect Netflix's hybrid
distribution model.

I think Rhapsody's got a friend in Netflix.

This will be interesting, given how much Apple has promoted Netflix in recent
store advertisements, and integrated Netflix with Apple TV. Does this mean
that Netflix will be required to have subscriptions entered through the App
Store? What about the restrictive privacy policy; will that hinder physical
distribution?

~~~
zach
I would be surprised if the thought of using in-app purchasing for
subscriptions even moved their needle of interest at Netflix.

Again, if you're just providing a conduit for your subscription service, all
this means is that you can't provide a direct call to action in your app.

They seem like the prototypical example of an company that couldn't care less
about using the App Store as an app-based advertisement or purchasing
platform.

~~~
dablya
My understanding of the new rule is if your app is used to consume content
bought outside of the app, then your app must offer a way to purchase
content/subscription through the app for the same price, with apple getting
30%.

~~~
dmfreck
Precisely. Netflix doesn't get a free pass.

------
elai
If the iPhone doesn't have things like Pandora, Evernote and many other cloud
services available because of this change, it makes one of the most useful
parts of the iPhone disappear.

------
alanfalcon
Time to pull the iOS app, build a mobile web app, and have your customers send
e-mails to steve@me.com expressing their displeasure.

~~~
anthonycerra
I'll do one better than email Steve. This will be my last iPhone.

~~~
georgemcbay
The iPhone 3G was my (first and) last iPhone because of other issues (the
language lockdown). Actually not just my last iPhone but my last Apple Thing,
period.

Voting with your wallet is the ONLY thing one can do to really get their
attention (governments could step in on anti-competitive grounds, but that's
not really something we can help with short of contacting our
representatives).

If the user base just whines and moans while continuing to line up for the
next shiny phone a week in advance of release to help Apple deliver record
quarter after record quarter, Apple isn't going to change anything, they are
just going to keep pushing and pushing. They've already shown that clearly in
the past.. this is hardly the first questionable decision they've made in
terms of controlling the iOS platform.

------
FirstHopSystems
Pretty soon..I'm sure it will be 30% of your advertising revenue. Rent? This
is more like taking a chunk out of your paycheck. For all the employees out
there I'm sure your company would love to take part of your check for the
opportunity to work.

30%? do you get any other benefits from Apple? or is it "you take it and you
like it."

Apple just has to do is sit there and let the small developers take all the
risk. Are they loosing money on each phone sold? I can see charging a payment
processing fee like PayPal. 30%? I just hope this doesn't set any precedent.

------
dalton
Given the challenges subscription services already face re:margins, giving
away another 30% is game over.

If this stands, the labels are probably going to have to give up on
subscription services as a category, or lower their wholesale prices
dramatically.

~~~
JamieEi
Rhapsody doesn't have "another" 30% to give. Their margins are probably
something like 5%. Crapple is demanding 30% of the sale price, which leaves
Rhapsody with a 25% loss.

Since that is economically infeasible, Apple is effectively mandating that
they are the only ones who can sell content on their platform.

------
Vicaria
Once again, Apple is underestimating the average consumer's willingness to
take the path of least resistance. Apple became very niche for graphics &
layout artists back in the day and lost a market they could have owned. By
trying to hold its customers hostage, they enabled IBM & Microsoft to become
household names and the Apple name was "that other kind." They came back
because they innovate, but innovation only stays innovative for so long.

They need to distinguish better between their "average Joe" and their "power
user" products & strategies because "power user" products will sooner or later
become "average Joe" products.

If they wish to limit themselves to a niche market then this move makes
perfect sense. If they want volume and to continue market domination, they're
repeating history and, regardless of how smart their executives are, I don't
think they can pull if off because we don't live in that kind of a world.

I've been wanting an iPad and iPhone like you couldn't believe. But I'm
patient and they made me nervous with their exclusive AT&T arrangement so I
wanted to see what their next move was. I've been enjoying my Android phone
very much. Looks like I'll be doing the same with whichever non-Apple tablet I
choose. Too bad.

------
blinkingled
Might work out well for Apple as do most things they do - Amazon pulls out,
garden-dwellers dwell on whatever iBooks offers, Rhapsody and Pandora pull out
- there is only iTunes!

Apple is in a position where they can get very crafty and evil - just enough
to get away with it all without being a monopoly - there is Google to help
them there! Envious position for a company indeed!

------
possibilistic
Why hasn't a massive antitrust case against Apple been launched? Their
behavior strikes me as far more anticompetitive than that of Microsoft during
the "Browser Wars".

Apologists: I don't care that Apple created something this profitable--that is
not the issue. Desiring complete control over the _mere act of_ computing on
your own machine* is the problem. Apple is doing a wonderful job of absorbing
a large swath of the marketshare and turning it into a closed ecosystem for
developers, content providers, service providers, and owners. Apple should not
have the authority to control _everything_ one does with their devices. Why is
this happening?

Maybe I worry too much, but I don't want to see our electronic freedoms erode.

~~~
Pooter
Apple doesn't even come close to having a monopoly.

Microsoft most certainly did have one during the browser wars, and were
leveraging it to get people to increase IE marketshare.

With Windows on the desktop, you didn't really have much of a choice but
Windows if you were going to use pre-package software, play games, or do
business. With the iPhone, you've got tons of competition - Android, RIM, and
WP7. If you don't want to work in that model, nothing forces you to, either as
end user or VAR.

~~~
ladon86
They're pretty close to having a monopoly on paid digital music downloads, and
perhaps portable music devices, and they're shutting out competitor streaming
music services with this move.

------
loewenskind
I can understand Apple wanting to cut out middle men. I've never been a big
fan of middle men myself, for the most part. But the biggest thing that bugs
me about this is: iBooks doesn't have any books where I am! I buy all my stuff
on Kindle because it's the only place I can legally buy a book at all. They
can't try to shove everyone off the platform when they don't have any viable
alternative themselves.

------
knowknowledge
What if Rhapsody offered a 23% discount for customers that subscribed via
their website rather than through the In-App method? They could call Apple's
30% cut a "convenience fee" like online ticket sales.

~~~
natrius
Their app would be pulled from the store. You do business in the App Store at
Apple's pleasure. Attempting to flout the spirit of their asinine rules is
unlikely to be successful.

------
vizzah
How's Rhapsody affected, if they don't offer in-app purchases?? quote: "Today,
Rhapsody subscriptions are available for purchase exclusively via
Rhapsody.com"

~~~
jaaron
If you'd follow the press releases or read the updated app store guidelines,
you'd learn that Apple has changed the rules and is enforcing old ones in new
ways that will affect Rhapsody, Amazon Kindle, Rdio, Netflix, and so on. The
new rules would require Rhapsody to allow new cusomters to optionally sign up
via in-app purchase with an ongoing 30% fee to Apple. The rules stipulate
rhapsody _must_ make this offer if they offer an app, despite the fact that
such an offer is unprofitable to Rhapsody.

~~~
cheald
I'm sure it wouldn't get past the Apple Censor Board, but that's about the
point that I would put in the in-app purchase button (for the item at 130% of
my base price) right next to a "Click here for 30% off!" link. All of a
sudden, your full retail price is heavily discounted and a lot more
attractive!

~~~
joel_ms
The guidelines stipulate that the in-app price must be the same or less than
your regular offer.

(You could possibly have a separate offer with iOS availability at a price
that compensates for Apple's cut, which means you would get Apple's cut from
everyone buying iOS availability outside the app.)

~~~
sh4na
Technically, they state you must have the same _or better_ offer. Better isn't
the same as cheaper, it can mean more expensive with more features, so an
"premium iOS offer with added features" for 30% more could be justified :P

~~~
joel_ms
They actually state both "same (or better) offer" and "same price or less"
(just not what I wrote :P).

But I still think the idea is to avoid what would be perceived as an Apple tax
when buying subscriptions in-app.

~~~
sh4na
I stand corrected, it's more yucky than I imagined. I can imagine what's going
through their minds doing this, but this is just plain stealing.. they want to
drive off any one that sells products that can potentially compete with them
(kindle vs ibooks?), but damn, again they're killing off everyone with a
bazooka, again. It's like the dev license change to kill off flash apps that
ended up hitting almost every top app vendor out there.

They might back down from this like they did for the dev license changes, but
this habit of always changing the rules in the middle of the game regardless
of who gets hit is really getting old.

------
neworbit
I shouldn't wonder if then conveniently enough Apple follows on with a
subscription service of their own...

~~~
rdouble
The record labels won't let them do it. That is pretty much the only reason
the streaming companies exist.

------
dataskills
Good. Rhapsody suuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuux.

------
ololololollol
lol

------
SPOTINT
AWESOME!

