Apple recently announced their intentions to charge subscription services 30% of the revenue derived from subscribers who sign up for a service through iTunes. In response, Google made an announcement that their fee for One Pass would be only 10%. With either situation subscription services with apps may find themselves having to shell out money that they had not previously anticipated. Companies impacted would include Sirius XM, Netflix, Pandora, Slacker, or any service that charges a subscription for their service and sells that subscription through Apples iTunes or Google’s One Pass.
At stake is a difficult decision. For example, if Sirius XM wants exposure through iTunes, they will need to pony up 30% of any revenue derived by someone signing up for the satellite radio service through iTunes. The terms of service for Apple do not allow for different pricing. This means that Sirius XM must charge the same for their service whether the consumer buys it through Apple or Sirius XM’s own site. The issue is being looked at closely by American as well as European regulators. The question subscription services need to ask themselves is whether or not a presence iTunes or One Pass delivers enough exposure to make the fees worth while. Potentially we could see companies like Sirius XM, Pandora and Slacker having to spend dollars on marketing to get consumers to their own site. This dynamic has been seen before in another industry. Discount airline Southwest does not use services like Travelocity. If you want the great prices Southwest has to offer you can only get them at one place…www.southwest.com.
There has been a huge shift to smart phones. Apple and Google are well aware of this. They have the distribution platform for apps. Now they want their pound of flesh. All of this at a time when smart phone growth is prepared to become ubiquitous with subscription services. Presence in the iTunes, Blackberry, and Android stores has been considered extremely important. It is the place where consumers KNOW to find the content and apps they want. Now that could all change. Companies that want to keep their revenue could be forced to spend dollars to let consumers know to go to their own websites for apps.
Certainly Apple and Google have a right to charge fees for their services. After all, they have spent millions on getting phones platforms and networks to market. The free ride is now over. Apple and Google have been successful in taking the smart phone world by storm. Now that they have become “MUST HAVE” devices these Apple and Google will now have a chance to name their price. There has always been a fee for getting onto the app stores, but at 30% of ongoing revenue subscription services may find themselves treading water instead of making the kind of money they anticipated.
While this news would impact Sirius XM, it will have a more dramatic effect on services like Pandora, which rely heavily on smart phones to get new registered users/subscribers. Currently Pandora’s subscription service runs about $36 per year, while Slacker is slightly more expensive. Both services have been staples in the app world since it started. Both could be forced into raising their rates to make up for a hefty revenue share taken by the likes of Apple. This would bring their respective price points much closer to that of Sirius XM. The satellite radio provider is more expensive, but if competitors have to raise rates the perceived value for a smaller delta than we currently see could allow SIRI to actually benefit.
All of this will continue to play out throughout 2011. Keep an eye on this as it impacts a wide range of companies that make a living in providing audio entertainment.
At stake is a difficult decision. For example, if Sirius XM wants exposure through iTunes, they will need to pony up 30% of any revenue derived by someone signing up for the satellite radio service through iTunes. The terms of service for Apple do not allow for different pricing. This means that Sirius XM must charge the same for their service whether the consumer buys it through Apple or Sirius XM’s own site. The issue is being looked at closely by American as well as European regulators. The question subscription services need to ask themselves is whether or not a presence iTunes or One Pass delivers enough exposure to make the fees worth while. Potentially we could see companies like Sirius XM, Pandora and Slacker having to spend dollars on marketing to get consumers to their own site. This dynamic has been seen before in another industry. Discount airline Southwest does not use services like Travelocity. If you want the great prices Southwest has to offer you can only get them at one place…www.southwest.com.
There has been a huge shift to smart phones. Apple and Google are well aware of this. They have the distribution platform for apps. Now they want their pound of flesh. All of this at a time when smart phone growth is prepared to become ubiquitous with subscription services. Presence in the iTunes, Blackberry, and Android stores has been considered extremely important. It is the place where consumers KNOW to find the content and apps they want. Now that could all change. Companies that want to keep their revenue could be forced to spend dollars to let consumers know to go to their own websites for apps.
Certainly Apple and Google have a right to charge fees for their services. After all, they have spent millions on getting phones platforms and networks to market. The free ride is now over. Apple and Google have been successful in taking the smart phone world by storm. Now that they have become “MUST HAVE” devices these Apple and Google will now have a chance to name their price. There has always been a fee for getting onto the app stores, but at 30% of ongoing revenue subscription services may find themselves treading water instead of making the kind of money they anticipated.
While this news would impact Sirius XM, it will have a more dramatic effect on services like Pandora, which rely heavily on smart phones to get new registered users/subscribers. Currently Pandora’s subscription service runs about $36 per year, while Slacker is slightly more expensive. Both services have been staples in the app world since it started. Both could be forced into raising their rates to make up for a hefty revenue share taken by the likes of Apple. This would bring their respective price points much closer to that of Sirius XM. The satellite radio provider is more expensive, but if competitors have to raise rates the perceived value for a smaller delta than we currently see could allow SIRI to actually benefit.
All of this will continue to play out throughout 2011. Keep an eye on this as it impacts a wide range of companies that make a living in providing audio entertainment.
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