What’s happened?
Spotify has been at war with Apple over the latter company’s App Store rules for some time.
That’s mainly because of Apple’s so-called ‘app tax’, which sees the tech giant, via its App Store, take up to 30% of subscription purchase transactions for third-party apps (like Spotify).
Last Wednesday (January 24), Spotify merrily announced it had enjoyed a breakthrough on this matter.
Thanks to the European Commission’s introduction of the DMA (Digital Markets Act), trumpeted Spotify, Apple’s 30% ‘app tax’ would become prohibited in Europe from March 7.
As a result, Spotify would be able to offer its own in-app payment mechanism on Apple devices, free from financial interference from Cupertino.
SPOT’s triumphalism, however, was to be short-lived.
In reaction to the DMA, Apple swiftly launched a new set of financial rules for app developers on its devices.
By Friday (January 26), Spotify was publicly bemoaning these new rules as “being the same or worse” as the original 30% ‘app tax’.
“Under the new terms, if we stay in the App Store and want to offer our own in-app payment, we will pay a 17% commission and a 0.50 cent Euro Core Technology Fee per install and year,” Spotify explained in a blog post, in which it called elements of Apple’s new rules “extortion, plain and simple”.
Over on Twitter, Daniel Ek personally asked EU lawmakers to step in, and to stop Apple’s new rules from being legally permitted.
To achieve that, said Spotify, “All that is required is enforcing the very law [i.e the DMA] many worked so hard to accomplish.”
It added: “The ball is in your court, European Commissioners, and once and for all you must reject this blatant disregard of the very principles you worked so hard to establish.”
Why might this now matter to major record companies?
For a long time, record companies have avoided becoming too embroiled in Spotify and Apple’s ‘app tax’ spat – ultimately a dispute between two tech partners with little direct impact on music rights or royalties.
Now, though, those same record companies suddenly have a clear and vested interest in this debate.
In Spotify’s original, optimistic announcement about the DMA last Wednesday, the company said that – as a direct result of the additional revenue it would see after being freed from Apple’s ‘app tax’ in Europe – it planned to launch “superfan clubs” on its platform.
These “superfan clubs”, we can assume, would see consumers pay additional subscription fees to Spotify in order to gain access to walled-off content from (and communication with) their favorite artists.
These additional fees would, we can also assume, in turn boost the coffers of major record companies.
Unfortunately for Spotify, the death of Apple’s ‘app tax’ was – as mentioned – rather prematurely celebrated by Daniel Ek’s company.
Instead, Spotify now says that it has no choice but to continue to pay Apple’s 30% ‘app tax’, rather than pushing its users to alternative means of paying for subscriptions on Apple devices.
Explained Daniel Ek in his tweets on Friday: “Under these new terms, we cannot afford these fees if we want to be a profitable company, so our only option is to stick with the status quo.”
So: it appears that Spotify’s plan to launch “superfan clubs” on its service now hangs in the balance.
Their arrival may be dependent on whether Daniel Ek and his lobbying team can – with the help of anti-‘app tax’ allies like Epic Games – successfully convince EU lawmakers to quash Apple’s new revenue-nabbing measures, launched in reaction to the DMA.
A logical question, then: Could major record companies, for whom the launch of “superfan clubs” on streaming services is an increasing strategic priority, now rally behind Spotify’s anti-‘app tax’ campaign?
Or will the majors continue to ‘play Switzerland’ in this ongoing skirmish between two of their most valuable commercial partners?
Either way, the situation likely requires a careful balancing act from Universal, Warner et al – considering that Apple Music remains the second most popular subscription music streaming platform globally… behind Spotify.
What’s the context?
All of this Apple vs. Spotify commotion arrives in the same month that the leaders of two of world’s largest recorded music rightsholders, Universal Music Group and Warner Music Group, each pointed to the importance of superfans to their respective businesses in 2024.
Warner Music Group CEO, Robert Kyncl, wrote in a recent memo to staff: “We need to develop our direct artist-superfan products and experiences. Both artists and superfans want deeper relationships, and it’s an area that’s relatively untapped and under-monetized.”
Meanwhile, Sir Lucian Grainge, Chairman and CEO of Universal Music Group, noted that, following UMG’s push for a transition to an ‘artist-centric’ royalties model in streaming, “The next focus of our strategy will be to grow the pie for all artists, by strengthening the artist-fan relationship through superfan experiences and products.”
There’s no doubt that said “superfan experiences” are potentially lucrative for the majors.
In Goldman Sachs‘ latest Music In The Air report, the financial giant claimed that if 20% of paid streaming subscribers today could be categorized as ‘superfans’.
Furthermore, said Goldman, if these ‘superfans’ were willing to spend double what a non-superfan spends on digital music each year, it implied a $4.2 billion (currently untapped) annual additional revenue opportunity for the record industry.
A final thought…
Further complicating matters, Apple Music seemingly just gave the major music rightsholders a boost with its new Spatial Audio policy.
That policy sees music that is uploaded to Apple in the Spatial Audio format given a 10% boost in royalties, whether or not users stream the Spatial Audio version of these tracks or the ‘normal’ version.
However, this additional 10% will be taken from a fixed royalty pool – i.e. for the Spatial Audio artists on Apple Music to be paid more per-stream (a 10% royalty boost), non-Spatial Audio artists will end up being paid less per-stream.
(This is what Apple was nodding to in its memo to partners sent earlier this month, which read: “[P]ro-rata shares for ‘Spatial Available’ plays will be calculated using a factor of 1.1 while ‘Non-Spatial Available’ plays will continue to use a factor of 1”.)
What’s more, according to CMU, said 10% revenue boost will only apply to distributors/uploaders who make 50% of their catalogs or more “Spatially available” on Apple Music – i.e. uploading Spatial Audio versions of recordings in addition to ‘normal’ versions.
That’s a barrier to entry that arguably plays into the hands of companies like Universal Music Group, Sony Music Group, and Warner Music Group – potentially at the expense of aggregators who lack the resources to master over 50% of their tracks in Spatial Audio.
So on the one hand, Apple appears to be acting like the major record companies’ best friend.
On the other hand, Apple’s ‘app tax’ policies are – according to Spotify – harming its quest to launch “Superfan clubs”… just as the major record companies (and their investors) are hungering for more ‘Superfan’ activity on music streaming services.
As we said: A careful balancing act is required.
Music Business Worldwide
