Apple vs. Spotify

Rivals square up over Apple’s commission

Two of The biggest music streaming services are locked in a nasty fight over fees, and it has serious ramifications for everyone, but especially Apple. iTunes takes a straight 30 percent cut of any in-app purchase, and offers no access to alternative billing systems.

The spat was triggered when an updated version of Spotify’s iOS app was rejected. It was rejected because it bypassed Apple’s billing system, and sent you to Spotify’s instead.

Apple’s control of iTunes, and its unpopular 30 percent commission, looks likely to receive legal scrutiny.

Apple’s control of iTunes, and its unpopular 30 percent commission, looks likely to receive legal scrutiny.

Spotify claimed Apple was trying to “diminish the competitiveness of Spotify on iOS and as a rival to Apple Music.” Apple said the updated version violated its App Store rules, which are applied equally to all, whether or not they happen to be rivals. Spotify accused Apple of using its approval process as “a weapon to harm competitors.” It quickly descended from there, getting increasingly vitriolic. Spotify’s Head of Communications and Public Policy, Jonathan Prince, claimed that Apple “has long used its control of iOS to squash competition in music.” Apparently, Apple makes more out of Spotify subscriptions than it does out of Apple Music subscriptions: “They want to have their cake and eat everyone else’s, too.” Spotify went as far as charging an extra $3 on its subscription for a while, if you happen to take it out on an Apple device.

Apple’s response was inflexible and blunt. “Our guidelines apply equally,” said one of its lawyers in a letter that ended with: “I would be happy to facilitate an expeditious review and approval of your app as soon as you provide us with something that is compliant with the App Store’s rules.” Ouch! Basically a stonewall.

Spotify went to Washington to complain, where it received some sympathy, and where the matter looks likely to be settled, if some compromise can’t be figured out. Massachusetts senator Elizabeth Warren commented that “Apple has placed conditions on its rivals that make it difficult for them to offer competitive streaming services.” There are some big players watching from the sidelines on how this plays out. Amazon, for one, has never been happy with the cut Apple takes on its e-book sales. It even updated its Kindle app with a workaround, which guided you to Amazon to make a purchase when you searched for a free sample. Pandora is developing a music streaming service, and will be in the same boat as Spotify shortly. Netflix and other video streamers have a stake in this, too.

Streaming music is hugely popular—it recently overtook streaming video—but profits can be elusive. Spotify made a loss of $194 million last year, largely down to payments to artists and labels. Given such tight margins, Apple’s cut looks ripe for negotiation.

Apple is free to make its own rules for its own software, and its in-app purchase rules are quite clear; you are not permitted to sidestep the process. It could legitimately pull the plug on Spotify completely—it has removed uncooperative companies before. Strictly speaking, it has done nothing wrong, simply applied the rules—rules that it has defined for itself, of course.

However, being seen to leverage your control of an OS or app to make profits from third parties directly tends to be met with a poor response by legislators. Just ask Microsoft. Congress likes the idea of an open and competitive marketplace, and Apple’s 30 percent “tax” on rivals selling similar services in the same arena doesn’t play well.

The potential loss for Apple, if it is forced to relinquish control of billing, or make a hefty cut to percentages, is huge.

Apple makes more out of Spotify subscriptions than it does from

Apple Musicones.

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