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Posted by Mark Mulligan on February 16, 2011
Earlier today I received emails from 2 music subscription services arguing that Apple's 30% levy on content subscriptions would force them out of the iTunes ecosystem. Digital music is a low-margin business. Rights costs typically account for over 70% of revenues and payments, technology and marketing taking most of the rest. So Apple's 30% levy has the potential to instantly turn premium music subscriptions from a low-margin to a negative-margin businesses. Apple's role in premium music subscriptions is key. Subscriptions have spent half a decade failing to break out of a niche. Portability delivered by iPhone apps and the like have given them a new life. So the levy hits subscriptions where it will hurt them most. So if subscription services opt to take their transactions out of Apple's ecosystem, the net result will be less "internal" competition for Apple's music offerings . . . just in time for a new iTunes subscription launch? And all done in an FCC-friendly manner. But perhaps most importantly, this could be an effective pre-emptive strike against an Android music service beachhead on iTunes? So the 30% levy won't kill off music subscriptions, but it will be a major speed bump with the added benefit for Apple of moving some pesky competitor tenants off its front lawn.