Apple has been accused of breaking European anti-trust rules, and furthermore, of having ‘distorted competition in the music streaming market’, according to the European Commission.
The EC launched an anti-trust investigation into Apple’s App Store rules last year and published its preliminary findings today (Friday April 30), telling Apple that it has “abused its dominant position for the distribution of music streaming apps through its App Store”.
At the centre of the EC’s investigation are two particular restrictions imposed by Apple on developers using the App Store to distribute their products:
- The mandatory use of Apple’s own proprietary in-app purchase (IAP) system for the distribution of paid digital content. Apple charges third party app developers a 30% commission – also known as Apple’s ‘app tax’ – on all subscription fees through IAP for the first year.
- Secondly, Apple’s rules, which prevent developers from telling users about alternative purchasing options outside of their IoS apps.
The Commission said today that it “takes issue with the mandatory use of Apple’s own in-app purchase mechanism imposed on music streaming app developers to distribute their apps via Apple’s App Store”.
The Commission also said that it is “concerned that Apple applies certain restrictions on app developers preventing them from informing iPhone and iPad users of alternative, cheaper purchasing possibilities”.
The EC’s investigation followed a separate complaint made by Spotify in 2019 regarding the impact that Apple’s App Store rules have on competition in the music streaming business. Spotify’s anti-trust complaint was filed against Apple with the European Commission in March 2019.
At the time, Spotify founder and CEO Daniel Ek wrote in a blog post that Apple was “essentially acting as both a player and referee to deliberately disadvantage other app developers.”
In response to Spotify’s complaint, last year Apple claimed that Spotify hadn’t actually paid any additional commission on a single subscriber obtained via the App Store for the prior three years.
Spotify’s Head of Global Affairs and Chief Legal Officer, Horacio Gutierrez, additionally claimed in June last year that Apple “intentionally designed a system rigged in their favor”.
The EC has published a ‘Statement of Objections’ today, which is a requirement as part of an formal investigative procedure into suspected EU antitrust violations.
If confirmed, the Commission’s preliminary findings would mean that Apple’s conduct breaks anti-trust rules.
According to the EC’s Statement of Objections, “The Commission preliminary finds that Apple has a dominant position in the market for the distribution of music streaming apps through its App Store”.
It adds: “For app developers, the App Store is the sole gateway to consumers using Apple’s smart mobile devices running on Apple’s smart mobile operating system iOS. Apple’s devices and software form a “closed ecosystem” in which Apple controls every aspect of the user experience for iPhones and iPads.
“Apple’s App Store is part of this ecosystem and the only app store that iPhone and iPad users can use to download apps for their mobile devices. The Commission found that users of Apple’s devices are very loyal to the brand and they do not switch easily. As a consequence, in order to serve iOS users, app developers have to distribute their apps via the App Store, subject to Apple’s mandatory and non-negotiable rules.”
Apple now has the opportunity to examine the Commission’s findings, respond in writing and request an oral hearing to argue its case in front of representatives of the EC and national competition authorities.
In a statement issued to media, Apple said that “the Commission’s argument on Spotify’s behalf is the opposite of fair competition.”
Apple argues that “at the core” of Spotify’s complaint filed with the EC is that it’s not able to advertise and direct users in its app to offers outside of its app, which Spotify says is anti-competitive behaviour.
Apple states that “no store in the world allows” this practice.
“The Commission’s argument on Spotify’s behalf is the opposite of fair competition.”
Apple
Said Apple in a statement: “Spotify has become the largest music subscription service in the world, and we’re proud for the role we played in that.
“Spotify does not pay Apple any commission on over 99% of their subscribers, and only pays a 15% commission on those remaining subscribers that they acquired through the App Store.
“At the core of this case is Spotify’s demand they should 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 don’t think they should have to pay anything for that. The Commission’s argument on Spotify’s behalf is the opposite of fair competition.”
“The European Commission’s Statement of Objections is a critical step toward holding Apple accountable for its anticompetitive behavior, ensuring meaningful choice for all consumers and a level playing field for app developers.”
Horacio Gutierrez, Spotify
Spotify’s Head of Global Affairs and Chief Legal Officer Horacio Gutierrez, told MBW: “Ensuring the iOS platform operates fairly is an urgent task with far-reaching implications.
“The European Commission’s Statement of Objections is a critical step toward holding Apple accountable for its anticompetitive behavior, ensuring meaningful choice for all consumers and a level playing field for app developers.”
“By setting strict rules on the App store that disadvantage competing music streaming services, Apple deprives users of cheaper music streaming choices and distorts competition.”
Margrethe Vestager, European Comission
Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “App stores play a central role in today’s digital economy.
“We can now do our shopping, access news, music or movies via apps instead of visiting websites. Our preliminary finding is that Apple is a gatekeeper to users of iPhones and iPads via the App Store.
“With Apple Music, Apple also competes with music streaming providers. By setting strict rules on the App store that disadvantage competing music streaming services, Apple deprives users of cheaper music streaming choices and distorts competition.
“This is done by charging high commission fees on each transaction in the App store for rivals and by forbidding them from informing their customers of alternative subscription options.”Music Business Worldwide