Friday April 30th 2021
Fee charged on music apps
Apple threatens competition penalty from the EU
If users of iPhone and iPad take out a subscription via the apps of streaming providers, Apple earns a lot. Market leader Spotify was a thorn in the side early on – the Swedes bypass the levy with a trick. If Apple does not give in, the EU threatens an antitrust fine.
The EU Commission accuses Apple of unfair competition in its App Store on iPhones and iPads. Apple discriminates against other providers of music streaming apps, said competition commissioner Margrethe Vestager after a complaint from the market leader Spotify. The notification is a preliminary stage to an antitrust fine by the EU. Among other things, the Brussels authority is taking action against the fact that the sales of subscriptions in the apps must be processed via Apple’s payment platform. The group retains 30 or 15 percent of the income. If the EU Commission prevails, this would call Apple’s business model for the App Store into question for other services as well.
The competition watchdog expressed concern that users of Apple devices would have to pay higher prices for music streaming subscriptions or that some subscriptions could not buy in their apps. In their preliminary findings, they also concluded that Apple had a dominant market position in the distribution of music streaming applications in the App Store. Vestager emphasized that the company was at the same time “gatekeeper” and competitor with its own Apple Music service.
Since the download platform was launched in 2008, Apple has generally levied a 30 percent tax on income from digital items or services such as subscriptions. For subscriptions that run for more than a year, the commission drops to 15 percent – and recently also for developers who earn less than a million dollars a year. The Commission’s investigation was triggered by a complaint from music streaming market leader Spotify, which competes with Apple Music. Spotify finds it unfair that Apple would have more money left over for the same subscription price because of the App Store levy.
The customers suffer from the model
The commission concluded that most streaming providers passed the fee on to their customers with higher prices. Spotify, for example, offered its subscriptions in the iPhone app for 12.99 instead of 9.99 euros per month. A few years ago, however, the service switched to instead selling iPhone customers the subscription via a website in order to avoid the fee. The video streaming service Netflix is also going this way. With this model, the second competition infringement comes into play from the Commission’s point of view: The providers are not allowed to directly include a link in the app to the website on which the subscriptions can be bought from Apple.
Apple counters that, for example, it would not allow a competitor’s electronics market to advertise alongside their own price tags. The iPhone group also points out that Spotify has won more than 100 million subscription customers since it withdrew from in-app purchases in 2016. In addition, Spotify does not pass on the reduction in the fee from 30 to 15 percent to customers. Spotify is the clear number 1 in the music streaming business ahead of Apple. The Swedish-based provider had 356 million users at the end of the last quarter, of which 156 million are paying subscription customers. The iPhone group had more than 60 million subscription customers in its Apple Music service in the summer of 2019 – and has not given any new figures since then. Unlike Spotify, Apple does not offer a free version.
EU shows hardship against US corporations
The EU competition watchdogs have been scrutinizing US technology platforms for years. Vestager imposed fines totaling $ 8.25 billion in three proceedings against Google. Among other things, the focus was on the Android smartphone system and the shopping search with item offers. At Amazon, the commission is investigating whether the group is unfairly competing with other retailers who use its platform. According to the preliminary results of investigations by the EU Commission, the American company is abusing its market power and thereby violating antitrust regulations.
If companies violate EU competition rules, they risk fines of up to ten percent of their annual global sales. The problem with such sentences, however, is that they are only imposed after years of investigation and then often go through court instances for more years. Potential competitors may then no longer exist.
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