Swedish music streaming company Spotify Technology SA’s antitrust complaint against Apple Inc. in Europe is another example of a dispute arising when a company is both the provider of a platform and a participant in that platform. Spotify says Apple uses its wildly popular App Store to undercut competitors to the Apple Music steaming service. Apple says the Swedish company simply wants to avoid the fees associated with selling services via the tremendous store it took years to build.
Apple Music recently surpassed Spotify in the U.S. market, according to the Wall Street Journal, signing up 28 million subscribers compared to Spotify’s 26 million. Spotify continues to have more total subscribers, however.
Spotify Founder and CEO Daniel Elk took to the company blog to make his case, saying, “Apple operates a platform that, for over a billion people around the world, is the gateway to the internet. Apple is both the owner of the iOS platform and the App Store—and a competitor to services like Spotify. In theory, this is fine. But in Apple’s case, they continue to give themselves an unfair advantage at every turn.”
In a recent statement, Apple says it revolutionized the distribution of music with iTunes, and did the same thing with the App Store, something that has created “many millions of jobs” and, it says, generated more than $120 billion for developers and new industries.
Spotify’s complaint comes down to a grab for more money, Apple says. “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.” The Spotify app has been downloaded 300 million times from the store, Apple says.
Level playing field?
“Apps should be able to compete fairly on the merits, and not based on who owns the App Store. We should all be subject to the same fair set of rules and restrictions—including Apple Music,” says Spotify’s Elk.
Apple responds by saying that not only is the App Store safe and secure, but developers “can rest assured that everyone is playing by the same set of rules.”
Unfair transaction fees?
“Apple has introduced rules to the App Store that purposely limit choice and stifle innovation at the expense of the user experience—essentially acting as both a player and referee to deliberately disadvantage other app developers,” Elk writes. He says Apple’s 30% fees on purchases passing through the Apple payment system would require Spotify to force it to “artificially inflate” the price of the Spotify premium service much higher than the price of Apple Music. “Consumers should have a real choice of payment systems, and not be “locked in” or forced to use systems with discriminatory tariffs such as Apple’s,” Elk says.
Apple disputes Spotify’s characterization of its business model and omits some important context. Free apps aren’t charged to Apple, nor are advertising revenues, or purchases of digital goods or physical goods and services, the company says. “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.” Apple also took a jab at Spotify on behalf of musicians, saying Spotify is “making ever-smaller contributions” to artists, musicians and songwriters. Spotify even sues these artists, Apple notes.
Taking control away from competitors?
“App stores should not be allowed to control the communications between services and users, including placing unfair restrictions on marketing and promotions that benefit consumers,” writes the Spotify founder.
Apple says it has not blocked Spotify’s access to products and updates to their app. The company says it has “requested adjustments” when Spotify has tried to “sidestep the rules” and has even worked with Spotify to help it bring its services to more devices and platforms.
This puts Apple in an interesting position, forcing it to defend pricing practices that are being condemned as anticompetitive. Apple recently settled a dispute with a provider after charging allegations very similar to those being levied by Spotify. Those companies were able to see through their dispute to reach a business resolution that worked for both sides. But the co-dependency of the companies is different in this case, and Apple may believe that a judgment affirming its App Store pricing policies may be worth the risks inherent in litigation.
But, there is more to the case than meets the eye. Spotify is not merely complaining about the 30% fee, which is arguably too high, but abstracting from that, their main complaint is the fact that the in-app purchases (IAP) have to go through ApplePay, when Apple collects its 30%. So it’s really tying: Apple is the monopolist of the store to a billion i-Whatever users, and that is a service Spotify must use. But tied to that is the use of only Apple’s payment platform, which is the tied service, which is unwanted by Spotify. To force the tied service, Apple prohibits direct communications between the app developers and their subscribers or any payment for app services that flow outside the app store. So it is a tying claim, provided stores for apps for Apple users is a relevant market that Apple is the monopolist in, and on-line payment services is another relevant market that Apple is forcing in.
And that's just from a U.S. perspective. From an EU perspective, it’s an abuse of dominance case (the complaint is confidential) and the EC can take a plenary view of Apple’s policies and practices and decide whether it’s abusing its dominance. Hopefully, they will define the market as "iOS app stores" and not some percentage of all smartphones, but we shouldn't hold our breath. Clearly, it’s easier under a fact pattern consisting of a diffuse set of corporate policies which, together, have a significant anticompetitive effect to complaint to the EC than it is to mount a suit in a US court. But, given what’s at stake, it would make a lot of sense for Spotify to sue in a U.S. court, as well, for tying app distribution to payment services. Anyone know the CEO?
MoginRubin will track this emerging refrain against big tech platform providers as it is getting more and more attention from politicians – like several leading U.S. presidential candidates – and regulators, particularly in the EU.
