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Spotify claims that the pricing model in the App Store favors Apple services giving them an unfair advantage in the marketplace.
Apples Cut in the Play Store
Invisible to the customer is the fee apple takes when purchasing in the app store or a subscription within an app. This fee is largely responsible for Apple’s $10 billion in services revenue per quarter, with relatively small amounts from licenses (default search engines etc.), subscriptions such as Apple Music, and Apple Pay and Apple Care for the remaining. This fee was 30% of app sales until 2016 when it was lowered to 15% on subscriptions.
The primary complaint from Spotify (NYSE:SPOT) is that this fee created an incentive for consumers to choose Apple Music based on convenience. When Apple (NASDAQ:AAPL) launched its music service in the EU, they were able to be both the platform holder as well as a competitor to Spotify. The complaint further notes that Apple does not allow links to payment pages to circumvent this fee making the process to subscribe without Apple’s fee more difficult for the user. The App Store has also continued to change on Spotify, where they are not allowed to show users other ways to pay or upgrade to premium services or offer promotions.
In a statement from Spotify's counsel Horacio Gutierrez “We’ve consistently worked hard to play by the rules, even though we can never be sure when they will change, or how.”
Spotify did not mention whether they would pursue similar action against Google who also offers the Android platform and Google Play Music. Interestingly Google offers the same 15% fee when subscribing through Google Play if the subscription is 12 months.
EU Antitrust History
Google (NASDAQ:GOOGL) has had a history of antitrust trouble with the EU, receiving a fine of $5.1 billion last summer for their app store dominance, and bundling their own apps with phones, being a “default choice”. Microsoft (NASDAQ:MSFT) also had trouble with Internet Explorer being the default browser and was forced to offer consumers a choice instead of defaulting to one platform, with a fine that totalled $1.4 billion when non-compliance was included.
While previous antitrust cases against Apple have been unsuccessful, they were based on the merit of Apple holding a monopoly across smartphones in Europe, which they don’t. Apple does, however, hold a monopoly across the iOS platform. Spotify did not mention what percentage of their sales come from iOS or how much harm they are claiming from the action. If this complaint goes through it would take years to realize the impact as other companies like Netflix have made similar comments during their earnings call. Complaints to the EU can result in a fine, a required change to operation or both. We will be following this story closely as it develops further.