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Expert Insights

05 May 2021

Music to our ears? Well, perhaps not for Apple.

A feud first began when the music streaming giant, Spotify, filed a complaint against music streaming provider, and competitor, Apple Inc back in 2019. Spotify accused Apple’s App Store for providing policies that suppressed the competition in music streaming services. Tension had continued to build due to a competing desire to champion vodcast streaming, however, it finally came to a head on Friday when the European Commission issued its formal antitrust charges against Apple over concerns about the company’s App Store practices. 

The European Commission: Charges 

The European Commission stated that Apple’s dominant position in the market for distribution of music streaming apps through its App Store had enabled it to manipulate competition in the market. The Commission submitted to Apple a statement of objections, which set out how it believed Apple had violated the competition rules and why the tech giant needed to be placed under the antitrust microscope.

The Commission's main charges and antitrust concerns centre upon the two following issues:

  1. The mandatory use of Apple’s in-app purchase system (whereby Apple charges a 30 percent cut). This is also referred to by many critics as the ‘Apple Tax’. This has been deemed to create barriers to competition and has resulted in consumers looking more favourably towards Apple’s own App offerings.
  2. Apple’s misuse of anti-steering provisions. This rule prevents an app developer from informing users of other purchasing options (which may be cheaper); thus limiting them to Apple’s own in-app payment system. 

According to the European Commission, most streaming providers would pass on a fee to end users by raising prices however, in Apple’s case, it  had distorted competition in the market for music streaming services by raising the costs of competing music streaming app developers. As a result, it caused the music subscriptions on IOS devices to be more expensive to consumers. 

Apple: An Internet Gatekeeper?

App stores are a key feature of our digital economy. They allow consumers to shop, read the news, access movies and music via apps instead of having to access them directly through websites. Apple Apps Store has been considered the gatekeeper to users of Apple’s iPhones and iPads. As such, it is expected practice that Apple should offer a fair choice to all consumers; to enable a level playing field for all app developers. However, Apple has been criticised for distorting competition; enabling them to achieve an unfair advantage. 

Apple however, argues that its App Store does no such thing. In comparison to Google’s monster Android OS, Apple stated it’s IOS global market share is little over 10% and rebuffs the Commission's beliefs that it is monopolising the market. Apple also stipulated that Spotify already activates 99% of its paid subscriptions outside its App Store, but that it failed to provide a breakdown for iPhone and iPad subscriptions alone. Having said this, competition regulators have looked at the relevant market for “IOS apps” and have found that Apple have the ability to monopolise 100% of their sale and distribution; thus giving it the requisite control over the market. 

Violation of Antitrust rules

Should Apple be found guilty of violating the EU antitrust rules, the EU could impose a fine of up to 10 percent of its annual revenue, which, on the basis of Apple’s annual revenue of $274.5 billion last year, could reach $27 billion. It could also lead to changes in the tech giant’s business practices to allow for greater competition. However, this is not a closed case. Apple will have a chance to respond to the European Commission’s list of objections over the course of the next 12 weeks. We will therefore have to wait and see what the outcome will be. 

Comments

Although the recent charges only relate to the music streaming apps, there is already noise that Apple may be pursued on other other App platforms, including Apple E-books and Apple Pay. 

It is important to consider this case as one that represents all music streaming platforms, not just Spotify.  Should Apple’s investigation result in disciplinary action, we may soon see the introduction of tougher regulatory compliance to help level out the playing field and invite competition from smaller companies. It may allow competitors, such as Soundcloud and Deezer, an opportunity to present their offerings and engage with us as their customers; widening the market spectrum.

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