more readers is worthless if ones cost a lone put it at less than 30%. That means for every copy sold they lose money not gain money.
Take for example you are selling widgets. Now each widget cost you $90 and you are selling them for a $100 at my store. Well now I step in and for you to sell them at my store you have to give $30 for each one you sell. Another rule of my store is it has to match the cheapest prices anywhere else.
Yes I triple your volume but it is now costing you $20 dollar out of your own pocket for each widget you sell.
Btw this is the Walmart principle something Apple is now doing. Walmart keeps demanding lower and lower prices from its suppliers or it will drop them. With out Walmart they go bankrupt. With walmart they go bankrupt. All because Walmart basically keeps demanding a larger and larger cut of thing margins. Apple is doing the same thing.
Hmmm ... there are some major problems with this argument, which is not to say that this move by Apple won't drive off content/app providers but good argumentation is important.
First: generally in digital distribution there is no per item cost as there is in selling physical items. The exception to this is if the app you are providing requires servers the cost of which may depend on the number users. However, this is more of a day to day operating cost than a true cost per item sold. Thus, in general, there is no per item cost to the creator of a digital item save for the initial cost of development and licensing.
Second: Following from the first, the revenue model is very different for physical items versus digital as in one uses the inventory model (physical) and the other uses the commission model (digital) - although physical items can use the commission model too, but generally big retailers and big content providers of physical goods use the inventory system. In the inventory system, a retailer buys a certain amount of initial run. They offer to content provider $X for a product that cost $(Y<X) for the content provider to make and sell to the consumer for $(Z>X). They look at the sales after a period of time and decide whether or not buy more and how much. A digital distributor charges $X for hosting an app on their servers ($0 in Apple's case and I believe most of the larger digital distributors) and then takes Y% revenue from each sale to the consumer. As such if a content provider offers an app for free or very, very cheap but then requires a subscription to use, then the distributor of the app, Apple, sees no revenue.
Now Walmart can drive a supplier out of business by forcing them to sell the good for less than $Y or whereby the profit margins on the cost of making a product are dwarfed by operational costs. I don't include the operational costs into $Y since then $Y fluctuates with the number of items sold - i.e. a physical product in terms of materials may cost $Y to make but had an initial investment of $W dollars to name one of many operational costs thus you have to sell at least N items such that N*($X-$Y) > $W + other day-to-day costs. Thus a $Y including $W and other operational costs fluctuates with N and is less comparable with the example below.
In Apple's model they must sell N*($X-Y%*$X) > $W + other day-to-day costs. However, if Apple's share is 0% then Apple makes no money. However, if Apple's share is too large, then as Rhapsody complains, Rhapsody may lose money. Should Apple make money? Well yes, they are the distributor of the app and using a subscription model could be seen as a way to skirt revenue sharing to the person hosting your app and platform. As someone else coined, servers don't run on dreams and kitten-cuteness - the digital distributor can also go under from lack of revenue too. Now Apple is hardly hurting for cash, but it also unclear that Rhapsody's claim is well founded since users can still buy a subscription through them.
So Apple's wish for a piece of the subscription pie is not as unreasonable as Walmart's typical business practices. However, too big of a slice and Apple will lose subscription content providers just as too big of a slice from the revenue of single-buy apps or from advertisements on free apps will drive off non-subscription/non-in-app purchase content providers. Also there are more competitors (Android) of almost equal size to Apple. So if it does indeed drive off content providers, Apple will have to mend its ways to attract them back - it has a hard time driving them out of business. No one is as big as Walmart, though I read their recent sales numbers were down (a good thing in my book).
Another way is to allow business to host online stores and subscriptions without taking a revenue cut, thus treating them as true secondary distributors, but forcing them to pay a licensing/hosting fee for selling/giving away the initial store/subscription app through the App store.
