Apple Subscription Service Said to Draw U.S. Antitrust Regulator Scrutiny

The U.S. Justice Department and the Federal Trade Commission are examining whether Apple Inc.’s new media subscription service violates antitrust laws, according to two people familiar with the matter.

The agencies haven’t decided whether to pursue a more formal investigation as the examination is at a preliminary stage, said the people, who requested anonymity because the matter is confidential. The Wall Street Journal reported today on the preliminary probes.

Apple on Feb. 15 said it was starting a subscription service for publishers to sell newspapers and magazines on the iPad and other devices through the company’s online App Store. Cupertino, California-based Apple will take a 30 percent cut of any subscription purchased through the App Store. Publishers that participate will have to offer their lowest subscription rates within Apple’s store.

The following day, Google Inc. unveiled a rival service that lets the company keep only 10 percent of fees charged by publishers.

Apple’s plan is “economically untenable,” said Jon Irwin, president of online music provider Rhapsody International Inc., in an e-mailed statement Feb. 15.

Publishers’ Concern

The Apple service also will prevent publications themselves from providing different pricing and special subscription offers to readers, said John Sturm, chief executive officer of the Newspaper Association of America, an Arlington, Virginia-based industry group.

“It appears to us that Apple is now insinuating themselves between us and our customer in a way that makes it difficult for the publishers to succeed long term,” he said in an interview.

Gina Talamona, a spokeswoman for the Justice Department, declined to comment, as did an FTC spokeswoman. Trudy Muller, a spokeswoman for Apple, also declined to comment.

Content providers are working with Google and Apple to make their wares available in more ways, including on mobile devices, as sales of paper magazines and newspapers slump.

Apple’s App Store offers more than 350,000 applications to users of the iPhone, iPod and iPad, according to the company. About $1.1 billion of applications were sold through the App Store in 2010, making Apple’s revenue share about $317 million, according to estimates from Brian Marshall, an analyst at Gleacher & Co. in San Francisco.

The FTC has been reviewing separate allegations that Apple is engaging in anti-competitive tactics to restrict rivals in the mobile-advertising market. The Justice Department is looking into Apple’s business practices regarding its iTunes digital music service.

Photographer: Tony Avelar/Bloomberg

The U.S. Justice Department and the Federal Trade Commission are beginning to examine whether Apple’s new media subscription service violates antitrust laws, according to two people familiar with the matter. Close

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Photographer: Tony Avelar/Bloomberg

The U.S. Justice Department and the Federal Trade Commission are beginning to examine whether Apple’s new media subscription service violates antitrust laws, according to two people familiar with the matter.

To contact the reporter on this story: Jeff Bliss in Washington at jbliss@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net.

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