‘Apple Just F****d Over Online Music Subs’

Apple’s new subscription rules could seriously hurt the nascent wave of unlimited-music subscription services just as they promise to return the music industry to growth, some fear.

“Apple just f****d over online music subs for the iPhone,” says Last.fm co-founder Richard Jones in an IRC chat.

Right now, apps from services including Spotify, Rhapsody, Last.fm and Napster can sign up new subscribers directly by linking to their mobile websites. But, from June 30, this will be banned – new mobile subs and renewals must go through iTunes Store, which will take a 30 percent cut.

“I suspect that we will fall into the 30 percent net,” the CEO of one such service, We7‘s Steve Purdham, tells paidContent.org, “- especially when we update the app for consideration; it is likely to ‘fail’ at that time.

Thirty percent share makes music subscriptions economically unviable in their current form. But, if we take some time, let the dust settle, I think we will start to see new and novel approaches to this new ‘Apple Tax’.”

It’s potentially a big blow. Spotify’s iPhone app has been “an enormous success” and has swelled the company’s premium base “by a big number”, its CEO has previously said. In fact, we would bet the majority of Spotify’s 750,000 paying subscribers did so precisely to get mobile access, and iPhone in particular. Rdio launched its iPhone app with similar ambitions on Wednesday, one day after Apple’s pronouncement.

Apple’s not stopping these services from signing up subscribers on their own websites, as long as their apps don’t link to those websites. And monthly renewals, which are generally $10, could continue being made via bank debits.

But most of these unlimited-music services, which view mobile access as their main subscriber incentive, also want to sign up new users from the apps they download, plus users could always renew a web-originated subscription via iTunes – both scenarios would give away nearly $3 of that $10.

The economics of music streaming services were already under question since these aggregators are on a short leash from their investors and from the labels who supply their content. Some now think Apple’s new requirements could hit them to breaking point, harder than providers of other content types.

“It might work for print publishers who have never managed to charge for their content online, but it’s a killer for subscription streaming services,” writes Hanchen in our comments.

“Music and video services do not have a 30 percent margin to give away to Apple (NSDQ: AAPL). It means you’ll see them exit the market on iOS devices, paving the way for Apple’s own iTunes streaming.”

G Robertson adds: “All the licensing is already in place with the labels and music publishers so the subscription services essentially have to lose money on every iPad customer or bail out and concentrate on Android et al. Rhapsody have already said the deal is ‘economically untenable’. Real shame as this market was just getting interesting for the music industry.”

Rdio CEO Drew Larner tells paidContent.org: “I would echo what the heads of some of my competing companies have said. From a financial standpoint, that fee is certainly untenable for us, that’s obvious.”

U.S. single-track sales from iTunes, the market’s largest retailer, have plateaued and record label bosses like WMG’s Edgar Bronfman Jr. are keenly anticipating the arrival of new access models like these to both give industry revenue a new boost and to provide some real competition to Apple’s dominant conventional model.

Despite persistent rumour, Apple still has not yet announced a subscription iTunes music store of its own; it’s still pursuing the single-track model that has so far proved successful. Cynics suggest it has nobbled its nascent competitors before an eventual product relaunch of its own.

The upstarts themselves must now ponder the best way to make happen the future that labels seek. But it seems the best way to minimise the blow from a 30 percent giveaway would be that they grow large enough in scale to absorb the “Apple Tax”. The services could certainly find many more users if payment is eased by iTunes’ simplicity. But it seems like a recipe for consolidation and shake-out.

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