EU accuses Apple of distorting competition in the music streaming market

Siding with Spotify in a case that could lead to a large fine and changes in Apple’s App Store business practices, EU regulators accused Apple on Friday of distorting competition in the music streaming market.

Apple's App Store on iPhone
Apple’s App Store on iPhone

Aoife White for Bloomberg News:

Margrethe Vestager, the EU’s antitrust chief, will speak at a press conference at 1 p.m. in Brussels, according to an email from the European Commission’s press office. She’s expected to explain why an EU investigation has found Apple abused its power over its App Store to unfairly squeeze music-streaming service Spotify Technology SA.

The move to send Apple a so-called statement of objections raises the risk that the EU could order changes to its App Store or impose fines. Apple will have the chance to argue its case against any EU suspicions before regulators take a final decision.

Reuters:

If the case is pursued, the EU could demand concessions and potentially impose a fine of up to 10% of Apple’s global turnover – as much as $27 billion, although it rarely levies the maximum penalty.

The EU competition enforcer, in its so-called statement of objections setting out the charge, said the issue related to Apple’s restrictive rules for its App Store that force developers to use its own in-app payment system and prevent them from informing users of other purchasing options.

Apple rebuffed the EU charge.

“Spotify has become the largest music subscription service in the world, and we’re proud of the role we played in that,” it said in a statement. “They want all the benefits of the App Store but don’t think they should have to pay anything for that. The Commission’s argument on Spotify’s behalf is the opposite of fair competition.”

“Spotify does not pay Apple any commission on over 99% of their subscribers, and only pays a 15% commission on those remaining subscribers that they acquired through the App Store,” Apple said in a statement. “No store in the world” allows alternative deals to be advertised as Spotify is seeking to do from its iOS app.

MacDailyNews Take: As we wrote last September:

Spotify, Epic Games, Match, and the other whiners want all of the benefits afforded to them by Apple’s App Store for free. How is that “fair?”

Here’s another question: How much did it cost developers to have their applications burned onto CDs, boxed, shipped, and displayed on store shelves prior to Apple remaking the world for the better for umpteenth time?

“This boils down to the fact that Spotify wants to use the platform that Apple built and maintains at great expense for free.” – MacDailyNews, March 13, 2019

Apple addressed all of this in March 2019:

We believe that technology achieves its true potential when we infuse it with human creativity and ingenuity. From our earliest days, we’ve built our devices, software and services to help artists, musicians, creators and visionaries do what they do best.

Sixteen years ago, we launched the iTunes Store with the idea that there should be a trusted place where users discover and purchase great music and every creator is treated fairly. The result revolutionized the music industry, and our love of music and the people who make it are deeply engrained in Apple.

Eleven years ago, the App Store brought that same passion for creativity to mobile apps. In the decade since, the App Store has helped create many millions of jobs, generated more than $120 billion for developers and created new industries through businesses started and grown entirely in the App Store ecosystem.

At its core, the App Store is a safe, secure platform where users can have faith in the apps they discover and the transactions they make. And developers, from first-time engineers to larger companies, can rest assured that everyone is playing by the same set of rules.

That’s how it should be. We want more app businesses to thrive — including the ones that compete with some aspect of our business, because they drive us to be better.

What Spotify is demanding is something very different. After using the App Store for years to dramatically grow their business, Spotify seeks to keep all the benefits of the App Store ecosystem — including the substantial revenue that they draw from the App Store’s customers — without making any contributions to that marketplace. At the same time, they distribute the music you love while making ever-smaller contributions to the artists, musicians and songwriters who create it — even going so far as to take these creators to court.

Spotify has every right to determine their own business model, but we feel an obligation to respond when Spotify wraps its financial motivations in misleading rhetoric about who we are, what we’ve built and what we do to support independent developers, musicians, songwriters and creators of all stripes.

So we want to address a few key points:

Spotify claims we’re blocking their access to products and updates to their app.

Let’s clear this one up right away. We’ve approved and distributed nearly 200 app updates on Spotify’s behalf, resulting in over 300 million downloaded copies of the Spotify app. The only time we have requested adjustments is when Spotify has tried to sidestep the same rules that every other app follows.

We’ve worked with Spotify frequently to help them bring their service to more devices and platforms:
• When we reached out to Spotify about Siri and AirPlay 2 support on several occasions, they’ve told us they’re working on it, and we stand ready to help them where we can.
• Spotify is deeply integrated into platforms like CarPlay, and they have access to the same app development tools and resources that any other developer has.
• We found Spotify’s claims about Apple Watch especially surprising. When Spotify submitted their Apple Watch app in September 2018, we reviewed and approved it with the same process and speed with which we would any other app. In fact, the Spotify Watch app is currently the No. 1 app in the Watch Music category.
• Spotify is free to build apps for — and compete on — our products and platforms, and we hope they do.

Spotify wants all the benefits of a free app without being free.

A full 84 percent of the apps in the App Store pay nothing to Apple when you download or use the app. That’s not discrimination, as Spotify claims; it’s by design:

• Apps that are free to you aren’t charged by Apple.
• Apps that earn revenue exclusively through advertising — like some of your favorite free games — aren’t charged by Apple.
• App business transactions where users sign up or purchase digital goods outside the app aren’t charged by Apple.
• Apps that sell physical goods — including ride-hailing and food delivery services, to name a few — aren’t charged by Apple.

The only contribution that Apple requires is for digital goods and services that are purchased inside the app using our secure in-app purchase system. As Spotify points out, that revenue share is 30 percent for the first year of an annual subscription — but they left out that it drops to 15 percent in the years after.

That’s not the only information Spotify left out about how their business works:

• The majority of customers use their free, ad-supported product, which makes no contribution to the App Store.
• A significant portion of Spotify’s customers come through partnerships with mobile carriers. This generates no App Store contribution, but requires Spotify to pay a similar distribution fee to retailers and carriers.
• Even now, only a tiny fraction of their subscriptions fall under Apple’s revenue-sharing model. Spotify is asking for that number to be zero.

Let’s be clear about what that means. Apple connects Spotify to our users. We provide the platform by which users download and update their app. We share critical software development tools to support Spotify’s app building. And we built a secure payment system — no small undertaking — which allows users to have faith in in-app transactions. Spotify is asking to keep all those benefits while also retaining 100 percent of the revenue.

Spotify wouldn’t be the business they are today without the App Store ecosystem, but now they’re leveraging their scale to avoid contributing to maintaining that ecosystem for the next generation of app entrepreneurs. We think that’s wrong.

What does that have to do with music? A lot.

We share Spotify’s love of music and their vision of sharing it with the world. Where we differ is how you achieve that goal. Underneath the rhetoric, Spotify’s aim is to make more money off others’ work. And it’s not just the App Store that they’re trying to squeeze — it’s also artists, musicians and songwriters.

Just this week, Spotify sued music creators after a decision by the US Copyright Royalty Board required Spotify to increase its royalty payments. This isn’t just wrong, it represents a real, meaningful and damaging step backwards for the music industry.

Apple’s approach has always been to grow the pie. By creating new marketplaces, we can create more opportunities not just for our business, but for artists, creators, entrepreneurs and every “crazy one” with a big idea. That’s in our DNA, it’s the right model to grow the next big app ideas and, ultimately, it’s better for customers.

We’re proud of the work we’ve done to help Spotify build a successful business reaching hundreds of millions of music lovers, and we wish them continued success — after all, that was the whole point of creating the App Store in the first place.

Source: Apple Inc.

10 Comments

  1. It’s time to go thermal nuclear on Spotify. Ban Spotify from the App Store.

    When I walk in to a Nike store, I don’t expect to find Adidas gear.

    When I walk in to Burger King, I don’t expect to find Big Macs.

    Idk why Spotify is on the App Store when Apple has Apple Music.

            1. Microsoft and Apple can decided what goes on THEIR app stores.

              Not Spotify. Not the government.

              Don’t like it? Feel free to use alternate app stores. It’s easy to install them on iOS.

    1. Is the EU going to require upmarket retail stores to post notes on their shelves to let customers know they can get the item cheaper at a nearby discounter? The reason that upmarket retailers like Dior and the App Store are more expensive is that the better customer experience does not come cheaply. In this case, the EU wants Apple to provide Spotify with shelf space literally for free.

    2. chef: I don’t think you are acknowledging all the issues here.

      Apple also starts to cross the line when it starts arbitrarily enforcing or changing store rules in an autocratic manner. This was the first sign Apple was on the wrong track, and some of us were wise to this many years before MDN started flying the Parler banner.

      As an analogy, Ford Motor Company has no legitimate claim over a share of the profits from Shell Oil Company when you fuel up your gasoline-powered Ford Car (or from your local electric utility if you charge your Mach-E at home). Ford Motor Company also has no right to force all gasoline makers to submit their fuel to Ford for quality checks, which then and only then can be pumped into Ford cars. Just because you make a widget that can support subsequent sales, does NOT mean that the original manufacturer must have monopoly rights to control all the downstream economy. Even if Apple is able to convince regulators that owning the one and only app store is not abusive to the market, it’s going to have a hell of a time explaining why it needs to have its fingers on subsequent data exchange after the app has been sold to the end consumer. Of course big companies always try to dig moats, but when the market is damaged, abuse of power is against Antitrust law — regardless of whether Chevy makes equivalent alternatives to any Ford.

      To repeat, Apple does cross the line when they start charging a cut of profits for stuff that it DOES NOT host. Video, audio, news, etc was neither created by Apple nor hosted on Apple servers, nor in in any legitimate way “security checked” by Apple, if you believe Apple’s spiel.

      Apple has two easy solutions: make app distribution for iOS exactly like it is for the Mac. If Apple truly does perform essential services that 3rd party developers need and want, then they will continue to be the primary app store. Alternatively, rehash the rules of the store so that there is non-advocate independent review of any contentious policy enforcement, and corral off a section of the store for subscription-based apps, with new clear rules that govern their operation, including a provision that allows any iOS app to contain links to web-based data services that can save the end consumer money.

      Don’t worry, Apple won’t go broke and you would not have to change your iOS app consumer behavior.

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