“Apple‘s behavior is not an accident. They designed these rules to hurt us and other rivals to their advantage.”
The words of Spotify‘s Head of Global Affairs and Chief Legal Officer Horacio Gutierrez, during a 10 minute opening statement on a call with media today (June 16), following the news that the European Commission (EC) has launched an anti-trust investigation into Apple’s App Store rules.
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 investigation has been launched just over a year after Spotify filed an anti-trust complaint against Apple with the European Commission.
Around the same time, SPOT also launched the consumer-facing TimeToPlayFair.com website, including a timeline of Apple’s alleged anti-competitive business practices, FAQs and Fast Facts that show why it believes ‘Apple doesn’t play fair’.
That timeline has now been updated with today’s news about the investigation.
In March last year, SPOT boss Daniel Ek argued in a blog post that Apple was “essentially acting as both a player and referee to deliberately disadvantage other app developers.”
Ek’s words were echoed by Horacio Gutierrez today, telling journalists that “at the heart of our case is the fact that Apple acts as stadium, owner, referee, and player, and tilts the playing field in favor of its own services”.
In a response to Spotify’s complaint last year, Apple claimed that “Spotify wants all the benefits of a free app without being free”. Apple also claimed that Spotify was actually only paying the ‘app tax’ on less than 1% of its paid subscribers.
“The cost of working around Apple’s rules has been material. There is no doubt that Spotify would have been much more successful if it were not for Apple’s conduct.”
Horacio Gutierrez, Spotify
During today’s call, Gutierrez unequivocally argued that “[Spotify] don’t want special treatment or a free ride”.
He added: “We want a fair treatment and the opportunity to compete without artificial obstacles put in our way. All we’re doing is asking Apple to stop enforcing these anti-competitive rules because Apple intentionally designed a system rigged in their favor.
“The cost of working around Apple’s rules has been material. There is no doubt that Spotify would have been much more successful if it were not for Apple’s conduct. Their actions have also slowed us down, slowed our pace of innovation on the iOS platform.”
You can read Gutierrez’s statement in full below:
By now I hope you’ve seen the announcement from the European Commission that they’ve decided to formally investigate Apple’s anti-competitive behavior. We put out a statement immediately following the decision which is available on our timetoplayfair.com website.
Without a doubt today’s a good day for consumers, Spotify, and other app developers across Europe and the world. We are encouraged that the commission recognizes the harmful impact of Apple’s actions and shares the concerns we detailed in our March 2019 complaint. Over the last 16 months we responded to the commission’s request for information and have cooperated with the case team during its informal investigation process. We’ve welcomed the opportunity to prove how Apple has used its gatekeeper position to stymie competition and favor Apple Music at the expense of consumers and competitors.
This case is about making sure companies like Spotify can compete fairly on a level playing field so that consumers can access the content they want through the service they prefer without being penalized economically. However, this case is not just about Spotify. The commission’s decision to take on the case against Apple is an important first step towards developing new rules, rules of the road that will govern the conduct of online platforms for years to come.
That’s also why regulators in other markets around the world, including the US, are digging in to understand how platform providers like Apple wield their power in ways which threatened our collective freedoms to explore, learn, create, build, and connect. Spotify is proud to be at the forefront of this fight to protect consumer choice and create a level playing field for all.
At the heart of our case is the fact that Apple acts as stadium, owner, referee, and player, and tilts the playing field in favor of its own services.
We’ve worked hard to play by the rules Apple unilaterally imposes on app developers like Spotify, but their selected and capricious enforcement is designed to put companies like ours at an untenable competitive disadvantage. The most egregious of these rules require app developers selling digital goods, including Spotify, to use Apple’s IAP system for in-app purchases on an exclusive basis, and to pay them a 30% tax on every transaction for the first year of subscription and 15% for every year thereafter in perpetuity.
“At the heart of our case is the fact that Apple acts as stadium, owner, referee, and player, and tilts the playing field in favor of its own services.”
In our case, that meant we had to charge iOS users higher prices and pay Apple more than €3 for every subscription for a service we didn’t want every month. We ended up adopting the IAP system in 2014, which we only did to avoid the possibility of Apple rejecting our app updates or removing our app from the App Store. The only way we could afford to pay Apple’s 30% tax was by increasing the price of our premium subscription from €9.99 to €12.99.
Then in June 2015, Apple launched Apple Music, which they conveniently priced at €9.99, €3 less than Spotify. We couldn’t afford to compete against Apple on price so we had to stop using IAP in 2016. Unfortunately, companies that don’t use Apple’s payment system are subjected to onerous and ever-changing marketing restrictions that prohibit communicating with customers about discounts.
In our case, this meant sharing deals to upgrade their service from free to premium. In fact, we can’t even suggest upgrading to our premium service at all, nor can we give listeners tips on how to do that outside of the iOS platform. Apple has in the past gone as far as prohibiting Spotify from emailing our users about ways in which they can subscribe to our premium service.
It is telling that Apple’s 30% tax does not apply to all apps on the App Store. It’s a tax that was imposed only on a targeted group of apps; digital content apps, apps that either competed with Apple’s own apps like Apple Music or are active in areas that Apple is likely to enter in the future.
Many other successful apps on the App Store, for example, Uber or Deliveroo, are not subject to the Apple tax. And recently you may have read about Apple’s decision to give special treatment to Amazon by waiving the obligation to use IAP and the 30% tax for rentals or purchases made through the Amazon Prime Video app on iOS.
In response to this, one respected tech outlet said: “Because Apple has such strict control over what apps can appear on iOS, it bares the higher burden of responsibility to treat iOS developers fairly and consistently. But if the rule is, you pay Apple a 30% cut on your app’s costs, unless Apple really needs something from you to bolster its own subscription business. That’s neither fair nor consistent.”
So Apple’s track record of being inconsistent and unfair continues to this day. And once again, Apple pretends they’re doing one thing when in fact they’re doing something else.
We don’t want special treatment or a free ride. We want a fair treatment and the opportunity to compete without artificial obstacles put in our way. All we’re doing is asking Apple to stop enforcing these anti-competitive rules because Apple intentionally designed a system rigged in their favor.
Either we lose because we have to pay them a 30% tax just to operate and raise our prices for consumers as a result, or we lose because it becomes much more expensive to convert users from free to premium. Apple’s behavior is not an accident, they designed these rules to hurt us and other rivals to their advantage. The cost of working around Apple’s rules has been material. There is no doubt that Spotify would have been much more successful if it were not for Apple’s conduct. Their actions have also slowed us down, slowed our pace of innovation on the iOS platform.
“There is no doubt that Spotify would have been much more successful if it were not for Apple’s conduct. Their actions have also slowed us down, slowed our pace of innovation on the iOS platform.”
While some may point to recent product [integration] announcements as evidence Apple has changed its ways, we’re still a long way from achieving true parity. For example, you still can’t make Spotify the default music service on your iOS device. So despite Apple seeming to try and convince you otherwise, these integrations which are part of our normal course of business are not what our case is about.
As I said before, there’s no question that many of the services and products at platforms such as iOS and Android have created represent extraordinary innovation. But the moment a platform starts tilting the playing field with the specific intent of denying consumers the choices they deserve and disadvantaging competitors, that’s the moment regulators need to intervene. The issue here is whether our collective online experience will be one that is responsive to consumers and their interests, or is dominated by gatekeepers like Apple with the power to inhibit innovation and deny companies like Spotify the ability to competitively serve those very consumers.
So in closing, let me restate three things we had initially asked the European Commission to consider.
First, apps should be able to compete fairly on their merits and not based on who owns the App Store. We should all be subjected to the same fair set of rules and restrictions including Apple Music.
Second, consumers should have a real choice of payment systems and not be forced to use the platform owner’s proprietary system.
Finally, App Store should be prohibited from controlling the communications between services and consumers, including unfair restrictions on marketing and promotions. We’re not asking for special treatment or trying to gain an advantage, we’re seeking to restore a level playing field between Spotify and Apple Music, removing the artificial restrictions put in place by Apple.
To that end, we believe that the [European] Commission should compel Apple to remove the obligation exclusively to use Apple’s IAP with respect to in-app purchases on apps competing with Apple’s proprietary services, and eliminate the marketing restrictions that interfere with the communication between developers of apps competing with Apple’s proprietary services and their users in-app.
These things are critical to the success of not only Spotify, but also of the broader ecosystem and ultimately and most importantly in the best interest of consumers. The way Apple chooses to monetize its App Store must not result in anti-competitive foreclosure of Apple’s competitors.
We hope the Commission will impose remedies that ensure Apple’s iOS and other dominant platforms remain open, competitive, and fair. And we hope the Commission will act with urgency because the industry moves at internet speed and ensuring that the market remains competitive is a critical task. Music Business Worldwide
