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FTC investigation into Apple heats up, music streaming services hit with subpoenas

Apple's 30 percent App Store tax is being scrutinized by the Feds

The FTC has launched an investigation into Apple’s dealings with competing music streaming services in its App Store, according to multiple sources. The investigation is targeting Apple’s 30 percent fee charged to subscription services who sign up new users through the App Store. This has been a major point of conflict between Apple and rival music services as The Verge reported back in May.

The FTC’s inquiries have picked up over the recent weeks, on the heels of its initial investigation into whether Apple pressured labels to kill Spotify's free streaming tier. Sources with direct knowledge of the matter tell The Verge that the FTC has already issued subpoenas to music streaming services as it gathers more information to determine whether Apple’s App Store rules are anticompetitive.

The FTC is focused on Apple's in-app purchase restrictions

Apple’s App Store rules force companies that sell digital goods to use its in-app purchase API, commonly referred to as iAP, for any and all purchases in iOS apps. This stipulation has become a key point of interest in the FTC’s investigation, according to sources. Google, for instance, requires that apps selling digital goods use its in-app purchase system, but does offer exceptions in certain situations — like for digital content that can be used outside of the app — while Apple offers no such leniency.

Apple’s App Store guidelines call for a 30 percent fee to be charged to any sales by a subscription service that signs up users through an iOS app and uses iAP, which is essentially every paid music streaming service. This forces music streaming services like Spotify, Rdio, Rhapsody, and Tidal — who all charge $9.99 a month for their subscription service on their own sites — to charge users who sign up through their respective iOS apps $12.99 a month to make up for the lost revenue it must pay to Apple.

As you would expect, Apple Music doesn’t need to raise its price to make up for lost revenue, nor is it subject to other restrictions that the App Store rules place on competition streaming services, essentially giving the service a built-in advantage.

Competing music streaming services are banned from pointing users to cheaper prices on the web

If Spotify wanted to point iOS users who try to sign up through its app to its website, where the subscription price is cheaper, it wouldn’t be allowed according to the App Store rules. "Apps that link to external mechanisms for purchases or subscriptions to be used in the App, such as a "buy" button that goes to a web site to purchase a digital book, will be rejected," Apple wrote in section 11.13 of its App Store review guidelines. This is why Spotify sent out an email blast to its iOS users with explicit directions on how to switch over to the cheaper subscription price.

Competing music streaming services also aren’t allowed to offer free promos, according to the App Store guidelines, even as a three-month free trial is currently being offered for Apple Music. Music streaming services are also forbidden from offering family plans through the service, which again, Apple Music does.

"It’s absurd that a company like Apple can have its cake and eat everyone else’s."

Apple also charges this 30 percent fee for newspapers, magazines, and books sold through iOS apps, which is why you can’t buy ebooks or audio books through Amazon or Audible’s iOS apps. Amazon doesn’t want to be at a pricing disadvantage against Apple’s iBooks, which doesn’t have to charge that extra percentage.

Apple’s dominance in the music industry, however, far exceeds its reach in publishing which is likely why the FTC is focusing on music streaming services over ebooks. But if the FTC’s antitrust investigation forces Apple to alter its App Store tax policy, it could affect much more than just music streaming services.

Before Apple decided to get into the streaming game, its 30 percent tax was still a pain for music streaming services, but not a hindrance to competition, since everyone had to abide by the same rules. But now that Apple Music is available, the world’s largest company has put itself directly in the FTC’s line of fire. As an industry source said, "It’s absurd that a company like Apple can have its cake and eat everyone else’s."

Apple and the FTC both declined to comment.