Apple is facing an antitrust investigation that was predictable the moment it announced it was getting into the music streaming business four years ago. The company can most likely expect a similar investigation down the road after it launches its video streaming service later this year.
The first investigation follows a complaint lodged by music streaming leader Spotify earlier this year, according to the Financial Times. Citing sources, the newspaper reported that the European Commission’s competition division has officially opened the case which will likely involve talking to other services who have been quietly chafing under Apple’s App Store rules.
“In recent years, Apple has introduced rules to the App Store that purposely limit choice and stifle innovation at the expense of the user experience — essentially acting as both a player and referee to deliberately disadvantage other app developers,” Spotify cofounder and CEO Daniel Ek in a statement in March when the company filed its complaint. “After trying unsuccessfully to resolve the issues directly with Apple, we’re now requesting that the EC take action to ensure fair competition.”
Specifically, Spotify is frustrated by Apple’s policy of taking 30% of the fees for subscriptions from music and other services if they are sold via the App Store. Spotify argues that Apple is doing this in part to gain an advantage for the Apple Music streaming service that launched in 2015.
Apple responded by insisting Spotify had benefited from its platform and is wanting special treatment. But the reality is that this fight is about how Apple has used its massive installed base of iOS users to launch its own music streaming service and then rapidly close the gap with Spotify, a service that launched back in 2007.
One can debate the relative merits of Apple Music and Spotify in terms of their design, subscription models, and payment to artists. But the reality is that there is nothing revolutionary about Apple Music. Had it been launched by another startup, it certainly wouldn’t have 56 million subscribers by now.
In Silicon Valley, leveraging one’s platform is standard practice and applauded. The EU takes a very different view. European regulators believe it is their job to protect consumers from such practices, which they argue harm innovation, and therefore indirectly limit choice.
One can agree or disagree on this legal and political reasoning. But the EU has been consistent on this point: Companies can’t use their power in one market to gain an advantage in other market.
Back in 2004, the EU ruled that Microsoft did this by making its browser free to Windows users. The EU would go on to levy hundreds of millions in fines, while requiring Microsoft to make it easier to download rival browsers. EU regulators also required Microsoft to unbundle its media player from Windows, arguing that it had harmed competitors such as c.
More recently, Google’s spate of antitrust issues essentially revolve around this same dynamic.
Google was fined $1.69 billion by the EU a few weeks ago for abusing its dominant position in search to force third-party sites to favor its own ad network while freezing out rivals. Last year, EU regulators fined Google $5 billion for abusing the dominant position of its Android mobile operating system to favor its own apps. And in 2017, the EU hit Google with a $2.72 billion antitrust penalty for abusing its dominance in search to boost its comparison shopping service.
In the cases of Microsoft and Google, the investigations took years, and the remedies that required changes in behavior came well after rivals were beaten or greatly diminished.
Apple is likely betting that an App Store inquiry will drag out for years, and that the size of the eventual penalty will be manageable. The EU can technically levy fines up to 10% of revenue. But what’s a few billion dollars to a company that prints money? The company likely factored this fight into its planning even as it was creating Apple Music.
And it’s likely making the same calculations as it moves toward launching its video streaming service later this year.
Apple has already been seeing greater friction with Netflix, which late last year pulled billing support for its subscription service from Apple’s platform. There has been some growing concern on Wall Street that these tussles are starting to slow growth in some parts of Apple’s critical Services business.
It makes sense, then, that Apple would want to finally launch its own streaming service to continue building its subscription services. For its AppleTV+ service, it’s offering originals by big names attracted by Apple’s brand and its deep pockets. But at its big unveiling in March, there was nothing remarkable about Apple’s approach. It’s following the same playbook as Netflix.
What gives it a chance of success is pretty much what seemed to get Oprah all worked up: “They’re in a billion pockets!”
Forget the notion that innovation is important. Such calculations by tech giants are remarkably cynical. And as long as the rewards continue to outweigh the risks, that will continue to be the case.
