Streaming mad: EC charges Apple with abuse of dominance, distorting competition in Spotify case
- Reference: 1619792412
- News link: https://www.theregister.co.uk/2021/04/30/european_commission_apple/
- Source link:
In its Statement of Objections, the Commission took umbrage with Apple’s strict (and non-negotiable) terms that all developers must comply with, as well as the App Store’s position as the sole available method of app distribution on iOS (and other similar platforms, like iPad OS).
Per the App Store’s terms, Apple has forced developers to use its own payment infrastructure, where it takes a 15 to 30 per cent cut. Additionally, the use of other in-app payment systems (like PayPal or Stripe) are strictly prohibited, and inevitably result in an app being removed until it re-enters compliance.
[2]
The Commission noted that Apple users tend to be loyal to the platform, and seldom switch to competing operating systems, resulting in developers having limited (if any) leverage in disputes.
Although Apple’s terms allow for subscriptions bought beyond the walled garden of the App Store to be used, developers are banned from marketing them to users within the app, which the Commission described as an “anti-steering provision.”
The EU can fine Apple up to 10 per cent of its annual revenue, a sum which could amount to over $27bn based on fy2020's [3]top line ; it can also force Apple to change its rules for users resident in the bloc.
In the background, the EC is also conducting a separate probe into Apple over how it treats payment providers and developers in its Apple Pay system.
More expensive
Streaming services (and any other third party that relies on monthly subscription revenue) routinely charge more for subscriptions bought through the App Store, to account for Apple’s hefty cut. Given streaming apps made by Apple aren’t subject to this “tax,” they’re able to more effectively compete on price.
The Commission said it believes that Apple’s policies have distorted the market for music streaming services, resulting in higher costs for consumers.
The EC specified the rule allegedly being infringed was [4]Article 102 of the Treaty on the Functioning of the European Union, which prohibits companies from abusing their existing dominant position.
[5]
The publication of a Statement of Objections is an early, but important, step in a wider antitrust investigation. The Commission has informed Apple of its assessment about its objections, and has given it a right-of-reply. The company can now ask for an oral hearing, issue a written response, or ask to examine the evidence collected to this date.
Put on the Spotify
This investigation was [6]instigated in June last year by a complaint from music streaming giant Spotify , which has long balked at Apple’s payment policies, and has been among the most vocal lobbyists for reform in the US.
Not so nice, we investigated them twice: EU opens double whammy of inquiries into Apple's biz practices [7]READ MORE
Spotify is also one of [8]the founding members of the Coalition for App Fairness , a US trade organization that also counts Tile and the Match Group in its ranks, and has [9]pushed vociferously for statewide legislation in the United States that would chip away at Apple’s ironclad control of the app store, albeit [10]without any real success .
In a statement, the Commission’s executive veep Margrethe Vestager said: “Our preliminary finding is that Apple is a gatekeeper to users of iPhones and iPads via the App Store. With Apple Music, Apple also competes with music streaming providers.”
She added: “By setting strict rules on the App store that disadvantage competing music streaming services, Apple deprives users of cheaper music streaming choices and distorts competition. This is done by charging high commission fees on each transaction in the App store for rivals and by forbidding them from informing their customers of alternative subscription options.”
[11]
The results of the preliminary investigation were welcomed by Deezer, a relative minnow in the music streaming space. In a statement, Alexander Holland, chief content and strategy officer, said:
"We applaud the Commission’s findings today. It’s an important step towards a fair competitive landscape where dominant market players like Apple have to compete with independent companies like Deezer on quality of service, innovation and consumer experience, rather than artificially created barriers and a lack of a level playing field.”
He added: "Consumers benefit from fair competition through better and more diverse offers, features and content. While this is only the first step on a longer journey, we are happy that the Commission is acting in the interests of healthy European competition," he added.
How about them Apples?
In recent months, Apple has attempted to dampen criticism of its app store policies by [12]lowering the commission rate for smaller developers to 15 per cent . For larger-ticket purchases, this is still more than what you’d conceivably pay with Stripe, which takes 2.9 per cent plus 30 cents for each successful card charge.
Apple struck a defiant tone in a statement provided to The Reg : "Spotify has become the largest music subscription service in the world, and we’re proud for the role we played in that. Spotify does not pay Apple any commission on over 99 per cent of their subscribers, and only pays a 15 per cent commission on those remaining subscribers that they acquired through the App Store.
"At the core of this case is Spotify’s demand they should be able to advertise alternative deals on their iOS app, a practice that no store in the world allows. Once again, 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."
Speaking at [13]Apple’s Q2 2021 earnings call , Tim Cook said the company would face regulatory scrutiny by “telling [its] story.”
“If we feel that more disclosure would help, we would obviously move in that direction. The App Store and other parts of Apple are not cast in concrete. And so, we can move and are flexible with the times,” he said.
“For example, in the App Store, as you know, just a couple of quarters ago, we lowered the commission rate for small developers to 15 per cent. So that was an example of moving with the times, and we’ve gotten a great, great reception to that. And so, we continue to learn, and I think it’s very important that we’re very clear about why we do what we do,” he added. ®
Get our [14]Tech Resources
[1] https://ec.europa.eu/commission/presscorner/detail/en/IP_21_2061
[2] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/front&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2YIwpqZKZ5PPhfS4S9Vn0PwAAAIg&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[3] https://www.apple.com/newsroom/pdfs/FY20_Q4_Consolidated_Financial_Statements.pdf
[4] https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12008E102:EN:HTML
[5] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/front&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YIwpqZKZ5PPhfS4S9Vn0PwAAAIg&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[6] https://www.theregister.com/2020/06/16/eu_apple_competition_investigations/
[7] https://www.theregister.com/2020/06/16/eu_apple_competition_investigations/
[8] https://www.theregister.com/2020/09/24/app_apple_developers/
[9] https://www.theregister.com/2021/03/02/apple_app_store_payments/
[10] https://www.theregister.com/2021/04/25/antitrust_app_store_analysis/?page=2
[11] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/front&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YIwpqZKZ5PPhfS4S9Vn0PwAAAIg&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[12] https://www.theregister.com/2020/11/18/apple_to_halve_commission_for_small_devs/
[13] https://www.fool.com/earnings/call-transcripts/2021/04/29/apple-aapl-q2-2021-earnings-call-transcript/
[14] https://whitepapers.theregister.com/
Re: "we lowered the commission rate for small developers to 15 per cent"
The article states that Spotify pay 15% so what was your point?
Re: "we lowered the commission rate for small developers to 15 per cent"
"we lowered the commission rate for small developers to 15 per cent"
to forestall regulators and avoid the risk of being forced to lower it even more.
Nice article ...... pity about reality changing the actual result !!!
$27bn will buy a small country full of lawyers ..... :)
Apple will fight this through the courts, with pocket change, until they win.
Business as usual for Apple.
:)
Re: Nice article ...... pity about reality changing the actual result !!!
"Apple will fight this through the courts, with pocket change, until they win."
except that however much they pay their lawyers, thy are likely to lose, because the way they operate is precisely as described by the commission report - an abuse of monopoly status which results in consumers paying more than they otherwise would in an open market.
In the end it's highly unlikely that a fine anywhere near that magnitude will be levied, but more likely Apple will be forced to loosen their grip on the App Store (for EU customers at least)
Re: Nice article ...... pity about reality changing the actual result !!!
Except that you can use Spotify on iOS without paying Apple anything for that Spotify subscription...
Re: Nice article ...... pity about reality changing the actual result !!!
I take it you got to the subtitle and then came straight to the comments.
There is a few hundred million IOS users
who don't give a f*** about streaming music.
I'm one of those who prefer music delivered in the old way and can't quite understand why you are suckered into paying for the stream AND the network bandwidth costs to deliver it to you. The artists get a pittance and the network operators get a lot of traffic.
But naturally, this service needs you to be connected to the Internet. I can go out for a walk from home and within 10 minutes I'm in a 'not spot'. Not even 3G. 4G and 5G are pure pipedreams and this is less than 50 miles from Westminster.
I guess I am really getting old but I can't help but think that this streaming c**p is all a con.
Re: There is a few hundred million IOS users
you are in the minority now. My grandchildren use spotify, they rarely listen to the same song twice. So whilst I will listen to albums over and over, they do not.
Re: There is a few hundred million IOS users
"My grandchildren use spotify, they rarely listen to the same song twice"
Be thankful. My children use spotify, and they listen to the same song an/or audiobook over and over and over and over until it either drives me nuts or I can't get it out of my head (or first (b) then (a) )
Re: There is a few hundred million IOS users
Streaming is only one aspect of Spotify - I have various music downloaded from them, which I can listen to offline (since I don't use mobile data when I can avoid it).
The Stripe analogy that keeps being made in these stories is false. All Stripe provide is payment processing, app stores provide:
* cloud storage for your app binaries
* a CDN so your users get a fast install experience anywhere in the world
* automatic updates for your users
* the review process so users know your app is safe to install (theoretically)
* placement in the store catalog
* promotional actiities (if your app is selected for such)
A much more apt analogy would be a retail store who expect at least 50% from the purchase price. Suddenly Apple, Google, Steam, etc don't look so bad huh.
Except....
I am allowed to sell my product through any retail store that wants to re-sell it and I don’t have to pay them an annual fee to use their stuff.
You are right about the effort required to make sure that product is in place and marketed but so do retailers.
I’m not convinced about the 50% bit either.
Needs more work.
There has to be a way to balance this
On the one hand, taking a 30% cut of a music subscription every month forever is a pretty big price, reaching into the hundreds of dollars after a few years. On the other hand, if Spotify distributes their app for free and Apple gets nothing from the subscription, then they get nothing from them to defray the cost of providing downloads/updates for Spotify's app or the cost of building/improving the platform which made Spotify's iOS app possible.
Is there no middle ground between "take a big cut every month forever" or "give them a total free ride"? I'm sure some will suggest a lower rate would be appropriate, but Spotify won't accept that. They want zero, hence the comparison with Apple's music streaming app.
That's the problem with the modern app economy. Everything is a free download, with subscriptions, in-app purchases, or advertising (sometimes all three!) but if the platform is cut out of all three they're just basically providing free distribution. Bet all the companies back in the brick and mortar days of software would have loved being able to force retailers to provide them shelf space and sales processing for free. There's a reason the "freemium" model didn't exist until app stores made it possible.
I wonder what would happen if Apple stopped allowing "free" apps that have a subscription or in-app component, and required they charge something up front?
Re: There has to be a way to balance this
There is middle ground, but the cost to Apple of distributing an the keeping the app updated is more like 1% or a fraction of percent of the in-app subscriptions, for an app like Spotify.
And that's already on top of the huge margins they have on the sold hardware.
> There's a reason the "freemium" model didn't exist
yes, 'cause we called it "shareware"
Not sure this is going to hold water....
Because you can pay for Spotify outside the Apple system they might find it hard to demonstrate serious issues here.
You can always require users of an app be logged in, and charge for the login from elsewhere.
"we lowered the commission rate for small developers to 15 per cent"
"Because that's not where we make real money from - we kept the 30% on big ones to ensure the money keep rolling in"
Classical economic theory would have said you charge large customers less than small ones - but in Apple's Alternative Reality (AAR...) everything works to make the Apple bigger and bigger - I guess Spotify can't care less about how much Apple charges Joe's App sold to a couple of relatives.