Our preliminary conclusion: Apple is in breach of EU competition law. Apple Music competes with other music streaming services. But Apple charges high commission fees on rivals in the App Store and prohibits them from informing about alternative subscription options. Consumers are losing.
Margrethe Vestager, Executive Vice President of the European Commission for a Europe Fit for the Digital Age (Competition)
It’s going to be a busy morning for Apple’s lawyers. The European Commission has concluded that the Cupertino tech giant has “distorted competition in the music streaming market as it abused its dominant position in distributing music streaming apps through its App Store”.
The case
The European Commission is considering two factors – the mandatory use of Apple’s own in-app purchase mechanism for third-party music streaming apps and the lack of a way for app developers to inform users about other in-app purchases.
Under EU competition law, this is anti-competitive practice, so the Commission has already issued an antitrust charge against the company.
Simply put Apple charges third-party app developers a 30 percent commission for the use of in-app purchases. The fees are mandatory, which means that app developers like Spotfiy cannot avoid them and they have to approach their customers to compensate for the losses on their part.
This is already reflected in raise Spotify Premium subscription prices worldwide, as reported earlier this week. Spotify’s role in this dispute is critical as the music streaming giant was the one that filed the antitrust complaint over the so-called “Apple tax” about two years ago.
Apple’s immediate response
Of course, Apple gets the chance to tackle the accusations, but at this point, things don’t look very bright for Tim Cook and the company.
In response to the European Commission’s conclusions, Apple stated the following:
“Spotify has become the largest music subscription service in the world, and we are proud of the role we played in it. Spotify does not pay Apple any commission for over 99% of their subscribers and only pays 15% commission for the remaining subscribers that they have acquired through the App Store. At the heart of this case is Spotify’s requirement that they 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 do not think they have to pay anything for it. The Commission’s argument on behalf of Spotify is the opposite of fair competition. ”
EU Commission Director Margrethe Vestager, who is in charge of fair competition, said Apple’s App Store has become too large a part of today’s digital economy for such potentially unfair business mechanisms to be overlooked. She calls Apple “a gatekeeper for users of iPhones and iPads via the App Store,” and paints iPhone maker as a monopolistic company.
In the case of the music streaming debate, Margrethe Vestager says:
With Apple Music, Apple also competes with music streaming providers. By setting strict rules in the App Store that make competing music streaming services difficult, Apple deprives users of cheaper music streaming choices and distorts competition.
Consequences
If Apple is found guilty, the potential fines could be as high as $ 27 billion. Or 10% of the company’s annual turnover. More importantly, the company is likely to have to change its “business mechanisms” if it is to continue to offer certain services in the EU.
Spotify’s chief legal officer, Horacio Gutierrez, is pleased with the EU’s response, saying that this is only the first (critical) step towards holding Apple accountable for its anti-competitive behavior. He wants a level playing field for all app developers competing with Apple in their own App Store.
None of this is particularly shocking. Other large companies such as Rakuten and Epic Games (developer of Fortnites) is also suing Apple for similar reasons.
Speaking of competition, Tile seems to be Apple’s next “victim”. Tracker-maker will soon face stiff competition from Apple’s own AirTags, which will be closely integrated into the company’s ecosystem, making it very difficult for Tile to maintain its current position in the market.
