Last.Fm Founder Criticizes Apple Over Music Subscription Fees

An anonymous reader writes "Apparently not one to mince words, Last.fm founder Richard Jones lambasted Apple for their recently announced App Store subscription rules. 'Apple just ****ed over online music subs for the iPhone,' Jones wrote in IRC earlier this week. Taking things further, Jones angrily theorized that by effectively preventing subscription services like Rhapsody and Spotify from thriving on iTunes, Apple is paving the way for its own music subscription service where it will, surprise surprise, face little to no competition." Jones argues that music service subscriptions don't operate at margins "anywhere near 30%," and that the dramatic loss in revenue will be tough to survive. Another article suggests that Apple's fee structure will highlight the publishing industry's broken business model. Some analysts expect it to raise antitrust concerns, though the wave of Android tablets hitting the market may stifle that sentiment.

Comments

Funny...

[dwightk]

that's what artists say subscription services are doing to the music industry

http://www.informationisbeautiful.net/2010/how-much-do-music-artists-earn-online/

Re:Oh Jonesy

[VGPowerlord]

Jones argues that music service subscriptions don't operate at margins "anywhere near 30%," and that the dramatic loss in revenue will be tough to survive.

Then price your products accordingly. People are willing to pay for iPads because of the convenience - they will pay for iSubscriptions for exactly the same reason.

According to new stories I've read from other sites on the same subject, Apple forbids them from charging more to iOS users than they do through their own web storefront.

What Apple is Doing is Terrible

[MogNuts]

I hate that people are already saying "well don't buy it" or "don't use it." Here is the reality of what happens in the REAL world:

a) Company pulls out of the market
b) Company raises their prices, in some form or another, to cover the cost. Consumer loses. Consumer pays more.

The winner? Ding ding! Answer B. That's what happens. So thanks to Apple, instead of paying, what $3 that Last.fm charges, they'll charge more. It could be $5. Or they could raise it to the competitors like Zune which is $10. I wouldn't bat an eye to pay for $3 for music a month. For $10, I might shop around first and potentially they might lose a sale.

And here is an even bigger problem. That cost will be raised for everyone else too. So you got an Android phone because you don't support Apple being an evil company? Too bad. It's $10/mo for Last.fm no matter what.

And wait, it gets worse! It raises the traditional pricing level for that product. It seems everyone is either in the $3/mo tier, $10. But at least you have a choice. But when Last.fm charges $10 because they can't make it at 3 with Apple's blatantly rip-off policies, now the norm will be $10. Thanks Apple! Now you have no choice--everyone pays $120 per year instead of being able to choose one that's $36 per year.

But alas, I'll get flamed and modded down to hell for this. I really think they enjoy the useful things at reasonable prices being ruined and they like to say "thank you sire, may I have another?"

Re:Cy me a River

[pyalot]

Actually, the big 4 (Sony BMG, EMI, Warner and Universal who account for something like 99% of the content on the big subscription services) together only make about 5 million songs available. Together they have a back-catalogue of about 200 million songs, most of which you'll never see again in any shape and form because they deem the cost of media transfer and meta-data editing to high in relation to how many they'll sell of each.

Re:Oh Jonesy

[DdJ]

People were doing that. The thing is, if you've already got development and distribution and promotion and all that stuff handled otherwise, factoring in 30% for essentially nothing but payment processing is pretty much unprecedented.

Something like 2% or 3% is closer to normal. Given the tie-in to an existing and popular gift card ecosystem (iTunes cards) and the near universal participation in the system by iOS users, maybe even 5% would have been reasonable. But 30%, for just payment processing? Even as an avid iPhone/iPad/MacOS user myself... too much, too much.

(Unless you're allowed to charge more to make up for it. That'd be better.)

The problems are....

[gstrickler]

There are several flaws with Apple's new subscription model. According to Apple's =press release:

“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,”

In theory, I agree, and so would most publishers. However, Apple's model doesn't operate that way:

1. Not all purchases made through an application are new subscribers, it may be an existing subscriber who is renewing. As the policy is written, Apple would still take 30%
2. Apple handles renewals, including automatic renewals for all subscriptions purchased via Apple. This means that Apple actually making the subscriber a customer of Apple, not a subscriber of the content provider. That's true even if it's an existing subscriber who renews via Apple. That is not how existing subscription models work, if you sell a new subscription, you get an one time commission, and all the renewals are handled by the publisher with no additional commission paid.
3. The publisher is prohibited from providing a link to their own online subscription signup/renewal from within an application they wrote, and the MUST provide a link with all the same subscription options within the app. All those must go through Apple, even if it's for an existing subscriber.
4. Even though the customer owns the iOS device, the publisher wrote the application, creates the subscriptions, and delivers the content, they are prohibited from making it convenient for customers to deal (or continue to deal) directly with the publisher from within the publisher's own application. In most cases, Apple isn't even hosting the content or providing the bandwidth for delivery. In short, the only way Apple might be involved is that they made (and sold) the iOS device, and is in accepting a payment (and only because of a policy that prohibits the publisher from making it easy for the customer and publisher to do business directly with the publisher). That's not worth 30% by any measure.

The policy as written is completely inconsistent with nearly all existing subscription business models, makes it easy for Apple to "steal" existing subscribers and take 30% of the subscription fees, and makes it more difficult for existing subscribers to subscribe or renew with directly with the publisher. It's completely inconsistent with the stated intent and philosophy. If not corrected, it will dramatically reduce the available of non-iOS specific content services such as Netflix, Pandora, Last.FM, and Rhapsody on the iOS platform. Fix it now Apple.

Re:Not a monopoly.

[vux984]

each paycheck you get $1000. you can keep that (ie not put your app on the iDevices)

or instead each paycheck will be $700. but you will get three times as many paychecks.

I was generally with you up until this, because it misses the issue. They aren't taking 30% of the PROFIT. They are taking 30% of the REVENUE.

Each subscriber they take has a cost associated with it. Suppose for each sale that generates you a cheque for 1000 you had expenses of 800, and profit of 200. That much more closely models the situation here.

Apple taking 30% of revenue, means you get a cheque for 700. But your expenses are still 800. So now you are in the hole. Getting 3x as many customers just puts you 3 times deeper into the hole.

If apple was taking 30% of the profit, they could swallow it. But very few markets can really afford a 30% swipe at their REVENUE.

Here's a final comparison:

Apple itself in Q4 had 20B$ in revenue, and $4B in profits. If someone took 30% of Apple's revenue, it would have gone from 4 billion in profits to a 3 BILLION DOLLAR LOSS last quarter. Its shares would be tanking in that sea of red ink.

That's what siphoning 30% off revenue does to a company.