On April 30, the European Commission issued a press release announcing it has started antitrust proceedings against Apple. The document detailed the Commission’s preliminary view regarding the company’s distortion of competition in the music streaming market by abusing its dominant position through its App Store policies imposed on developers. This issue was initially mediatized following a complaint made by Spotify back in 2019.
The European Commission focused on two specific rules imposed upon developers: the required use of Apple’s in-app purchase system, for which Apple charges a 30 percent cut, and the rule forbidding app developers to inform users of other purchasing options outside of the App Store. The European Commission found that “most streaming providers passed this fee on to end-users by raising prices”.
The 30 percent commission fee (also known as “Apple tax”) constitutes an additional cost for competitors who find themselves forced to raise their prices, thus making them less competitive against the music streaming platform created by Apple, Apple Music. The Commission sent the company a Statement of Objections listing how and why the latter believes the company violated competition rules.
As this is the initial formal stage of antitrust proceedings against Apple, they will have 12 weeks to respond to the Commission’s Statement of Objections. This specific case is limited to the App Store practices in the music streaming industry, but the Commission is also investigating the practices of the store regarding eBooks, games, and its practices as a whole. The European Commissioner, Margrethe Vestager, stated in a press conference on April 30 that “this is not the last case we will have when it comes to the App Store.”
This comes after Microsoft requested regulators to investigate the App Store last year, just a few months before its public dispute with Apple over its xCloud game streaming service.
If found guilty by the Commission of breaking EU rules, Apple faces a fine of up to 10 percent of its annual worldwide turnover which could be as high as $27 billion, based on the company’s annual revenue of $274.5 billion in 2020. Apple may also be obliged to change its business model, this having more damaging and lasting effects than the fine.
Apple, in a statement to The Verge, responded to the EU’s findings, saying: “Spotify has become the largest music subscription service in the world, and we’re proud of 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 core issue, in this case, is the 30 percent cut Apple cashes on subscriptions. Various companies such as Netflix or Spotify have long battled against the Apple tax to which Apple responded that “the revenue contributes to the costs of maintaining the App Store” and “enforcing its content, privacy and security policies.”
Spotify’s previous claims on Apple’s use of its App Store to suppress innovation and restrict consumer choice toward its own Apple Music service has been followed up in the eBook sector by Rakuten, which claimed that Apple’s 30 percent commission on each eBook sold while promoting its own Apple Books service is anti-competitive.
On the other hand, Epic Games also called out the App Store policies and filed an antitrust complaint with the Commission earlier this year. This is part of an ongoing dispute with Apple after Fortnite developers publicly criticized the policies of the Store around distribution and payments. Epic Games’ attempt to bypass the Apple tax regarding Fortnite downloads resulted in Apple removing the game from its Store.
In the past year, as the pushback against the App Store practices has increased substantially, Apple decided to authorize some video streaming apps to circumvent the App Store fee and reduced its commission to 15 percent for any developer earning less than $1 million in annual revenue.