Regulators Closely Watching Apple’s Subscription Service Terms
By:NewsyStocks   Sunday, February 20, 2011 3:06 PM

The Justice Department and the Federal Trade Commission has set a close eye on the terms Apple Inc. (Nasdaq: AAPL) set this week for companies to sell their contents on iPhone, iPads and other Apple devices.

The watch comes after the company attracted growing antitrust scrutiny in the US and Europe. The justice department and FTC are examining, if Apple is breaking any US antitrust laws by funneling media companies' customers into the payment system for its iTunes app store, while charging a 30% cut, the people familiar with the situation said. Both the agencies enforce antitrust laws, and now will decide which agency will take the lead in this matter.

Under the new terms for the service, the companies which want to sell their digital subscription content on Apple devices will be required to make it available for sale through iTunes App Store at the best possible price. The new terms prohibit media companies' apps from linking to stores outside App Store or from offering better terms to subscribers elsewhere making it difficult for them to attract buyers to their own sites. According to legal experts, some of those rules may pose antitrust problems.

Online music companies said Apple's 30% commission would cut too deeply into their profit margins. According to Rhapsody president John Irwin, "the company would be squeezed by having to pay royalties to the owners of the music it sells online as well as a 30% cut to Apple. The costs don't leave any room for a sensible business model."

Last year too Apple caught the eye of both the regulatory agencies. Last year, Apple came under the microscope, following its decision to ban iOS applications developed using Adobe products. In September, Apple reversed its policy before the decision could be made by either of the regulatory bodies.

Analysts expect something similar could happen, and Apple might change its policy once again to avoid any legal proceedings against the company.