Apple Inc. (AAPL.O) should be probed by the European Union’s antitrust agency over how it allegedly squeezes rival music streaming services, Spotify Technology SA (SPOT.N) said, escalating a debate over how Apple takes a cut of sales on its App Store.
The iPhone maker has created an “untenable” situation by imposing ever-changing rules and a 30 per cent tax for apps that compete with Apple Music, Spotify said in a statement on Wednesday. The Stockholm-based company said it filed a complaint about this with the European Commission on March 11.
“Once Apple became a platform provider, but also a direct competitor, their incentive to disadvantage rival services, like Spotify, became even greater and their restrictions started to become more frequent and extreme,” Horacio Gutierrez, Spotify’s general counsel, told journalists in a briefing in Brussels on Wednesday.
Spotify’s claims, while Europe-based, come just days after U.S. presidential candidate Elizabeth Warren said she would move to break up Apple for reasons that resonate with Spotify’s complaint. "Apple, you’ve got to break it apart from their App Store. It’s got to be one or the other. Either they run the platform or they play in the store. They don’t get to do both at the same time," Warren, a Democratic senator from Massachusetts, told website the Verge.
The antitrust complaint adds to a growing backlash against the tolls Apple and Google charge outside developers for using their app stores. EU regulators are also increasingly concerned about how technology platforms control the online ecosystem and may rig the game to their own advantage. Amazon.com Inc.’s potential use of data on rival sellers is being investigated by the EU to check if the retailer uses that edge to start selling similar products itself.
Spotify said it was forced to “artificially” increase monthly subscriptions for its premium service via the Apple App Store. Apple Music costs 9.99 euros (US$11.28) a month, the price Spotify charges for direct subscriptions to its own website and used to charge on the App Store before Apple imposed its own payment system and extra levy. While Spotify is available for free via Apple, upgrading to its Premium tier service can now only be done via the internet.
The Brussels-based EU regulator confirmed it received the complaint, which it is now assessing. Apple representatives didn’t respond to an email seeking comment.
Spotify’s complaint comes against the backdrop of Apple expanding its services business by launching new products. On March 25, the U.S. company plans to unveil a new video streaming and magazine subscription services, Bloomberg News has reported. While Apple is late to some of these markets, especially video streaming, the company has a built in advantage with more than a billion Apple devices in use. The iPhone maker often pre-installs its services on these gadgets, and it known for skillfully integrating software with its hardware.
“Spotify is largely on the right side in both facts and principle, which creates risk that App Store policy terms will be forcibly changed in a way that negatively impacts Services revenue and Apple’s brand," KeyBanc analyst Andy Hargreaves wrote in a note to clients.
Apple is part of an app economy that will grow from US$82 billion last year to US$157 billion in 2022, according to App Annie projections. App sales are becoming an important source of revenue growth for Apple, especially as iPhone sales decline.
Apple’s power as a platform hasn’t yet triggered antitrust concerns in Europe, EU Competition Commissioner Margrethe Vestager told reporters in Austin, Texas, on March 10, before Spotify’s complaint became public. "The way they charge in the app store could be a concern but then they would have to be dominant first," she said, pointing to Google’s Android as the main player for phone systems in Europe. "In some markets they are very very successful in Europe, but not in all European markets."
Spotify began emailing customers in 2015 that they should cancel subscriptions purchased through Apple’s App Store. Netflix Inc. and video game makers Epic Games Inc. and Valve Corp. have also tried to bypass the App Store. The U.S. Supreme Court heard arguments in November from a group of iPhone owners trying to sue Apple for using its dominance to drive up app prices.
Spotify Chief Executive Officer Daniel Ek said in a blog post that the complaint asks the Europe to focus on three main areas: whether apps can compete fairly on Apple’s platform, whether consumers are "locked-in" to Apple’s platform and payment system, and whether app stores impose unfair limits on marketing, promotions and communication with users.
The decade-long relationship between the two companies started in 2009, when the Spotify launched on the App Store. Apple in 2011 started imposing the 30 per cent fee and its own billing system, Spotify said, adding that it was at the same time blocked from showing customers other ways to pay or how to upgrade from its free to its Premium service.
On its website about the issue, Spotify said Apple only imposes the 30 per cent fee on some apps. Apple charges the fee to all subscription apps that bill via the App Store.
Spotify argued that in 2016 it started facing first threats by Apple that its app would be removed unless it complied with the rules. Spotify said it’s blocked from adding any promotions, discounts or even links to external pages with product information. Its app has been rejected several times since or had upgrades and improvements to the app blocked by Apple for months.
“We’ve consistently worked hard to play by the rules, even though we can never be sure when they will change, or how,” said Gutierrez.