Spotify Goes to Congress to Accuse Apple of Unfair Business Practices

Could this aid FTC investigation into Apple's alleged antitrust conduct?

Subscription News: Spotify Goes to Congress to Accuse Apple of Unfair Business Practices

Source: Spotify

The battle between Spotify and Apple escalates, as Spotify petitions Congress for relief. According to Spotify, Apple has blocked Spotify’s app updates which violate fair business practices, reports Consequence of Sound.

Spotify alleges that Apple is blocking updates because the Spotify app doesn’t force listeners to subscribe to the service through Apple’s billing system. Instead, Spotify directs listeners to its website where it can avoid the 30 percent “Apple tax.” This helps Spotify keep its price at $10 per month per subscriber, instead of the $13 per month per subscriber it would charge if the subscription was purchased directly through Apple.

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Last summer Apple launched its own streaming music subscription, Apple Music, at $9.99 a month. Because Spotify and Apple Music are now in direct competition with each other, a $3 monthly price difference could make a difference in which streaming music service an iOS user chooses.

Consequence of Sound reports that Spotify general counsel and secretary Horacio Gutierrez said Apple’s behavior is “causing grave harm to Spotify and its customers.”

In a letter to Apple general counsel Bruce Sewell and distributed to members of Congress, Gutierrez wrote, “This latest episode raises serious concerns under both U.S. and EU competition law. It continues a troubling pattern of behavior by Apple to exclude and diminish the competitiveness of Spotify on iOS and as a rival to Apple Music, particularly when seen against the backdrop of Apple’s previous anticompetitive conduct aimed at Spotify…we cannot stand by as Apple uses the App Store approval process as a weapon to harm competitors.”

Subscription News: Spotify Goes to Congress to Accuse Apple of Unfair Business Practices

Source: Apple

Sewell responded in a July 1, 2016 letter reprinted by Consequence of Sound. In the response, Sewell said, “Spotify has benefited enormously from its association with Apple’s App Store. Since joining the App Store in 2009, Apple’s platform has provided you with over 160 million downloads of your app, resulting in hundreds of millions of dollars in incremental revenue to Spotify…our guidelines help competition, not hurt it. The fact that we compete has never influenced how Apple treats Spotify or other successful competitors like Google Play Music, Tidal, Amazon Music, Pandora or the numerous other apps on the App Store that distribute digital music.”

Sewell added that Apple’s team has identified a number of issues with Spotify, including the removal of the in-app purchase feature which Sewell says is “a clear violation of the terms every other developer adheres to.” He denies that Apple’s conduct violates applicable antitrust laws, and he said that Apple will not give Spotify special treatment or protection from competition.

Spotify has the support of Senator Elizabeth Warren (D-MA). At a recent conference in Washington, D.C., Warren said, “Google, Apple, and Amazon provide platforms that lots of other companies depend on for survival. But Google, Apple, and Amazon also, in many cases, compete with those same small companies so that the platform can become a tool to snuff out competition.

Last summer the Federal Trade Commission launched an antitrust review of Apple’s conduct with competitors like Spotify and Rhapsody, said the Washington Post. Their investigation is ongoing.

Insider Take:

Competition is good for all businesses, including streaming music services like Spotify, Tidal, Pandora and Apple Music. The problem here, however, is that Apple also owns the iOS platform which those services rely on to help distribute their streaming music apps. Because of its current arrangement with developers, Apple gets a 30 percent cut of all subscription revenue generated.

That arrangement is changing, however. While the first year revenue share will still be 30 percent, Apple is dropping its cut to 15 percent in year 2 and subsequent years. That will help lessen the sting, but it would still give Apple Music a pricing edge over similarly-priced services.

It will boil down to how the FTC continues its investigation into Apple’s alleged antitrust behavior, but that investigation is unlikely to conclude any time soon. In the meantime, Spotify needs to find other ways to compete to maintain and grow market share.

On iOS, Spotify cannot compete on price with in-app purchases, and if Apple won’t allow Spotify to update its app on iOS, Spotify could lose iOS subscribers who want the updated app or potential subscribers who find it easier to subscribe to Apple Music.

Maybe Spotify should reconsider allowing in-app purchases on iOS. It won’t lose anything by doing so, at least not up front. Apple will get its 30 percent cut, and if new Spotify subscribers are willing to pay $13 per month for Spotify, let them. It seems Spotify doesn’t have anything to lose – and some revenue and subscribers to gain – by giving in, at least until the FTC concludes its investigation.