The European Commission is issuing antitrust charges against Apple over concerns about the company’s App Store practices. The Commission has found that Apple has broken EU competition rules with its App Store policies, following an initial complaint from Spotify back in 2019. Specifically, the Commission believes Apple has a “dominant position in the market for the distribution of music streaming apps through its App Store.”
The EU has focused on two rules that Apple imposes on developers: the mandatory use of Apple’s in-app purchase system (for which Apple charges a 30 percent cut), and a rule forbidding app developers to inform users of other purchasing options outside of apps. The Commission has found that the 30 percent commission fee, or “Apple tax” as it’s often referred to, has resulted in higher prices for consumers. “Most streaming providers passed this fee on to end users by raising prices,” according to the European Commission.
Our preliminary conclusion: @Apple is in breach of EU competition law. @AppleMusic compete with other music streaming services. But @Apple charges high commission fees on rivals in the App store & forbids them to inform of alternative subscription options. Consumers losing out.— Margrethe Vestager (@vestager) April 30, 2021
“Apple’s rules distort competition in the market for music streaming services by raising the costs of competing music streaming app developers,” says a statement from the Commission. “This in turn leads to higher prices for consumers for their in-app music subscriptions on iOS devices.” The EU has also sent Apple a statement of objections, which is essentially a list of how the Commission believes Apple has violated competition rules.
This is the initial, formal stage of antitrust proceedings against Apple, and the company will have the chance to respond to the Commission’s list of objections within the next 12 weeks. This specific case is limited to Apple’s App Store practices for music streaming, and the EU is investigating additional separate cases on ebooks and the App Store in general. “This is not the last case we will have when it comes to the App Store,” said European commissioner Margrethe Vestager in a press conference this morning.
Vestager also revealed the Commission is taking an interest in Apple’s policies around games on the App Store. “We also take an interest in the gaming app market,” said Vestager, responding to a question about the money involved in gaming apps on the App Store. “That’s really early days when it comes to that.” Microsoft called on regulators to investigate the App Store last year, just a couple of months before a public spat with Apple over its xCloud game streaming service.
Apple now faces a fine of up to 10 percent of its annual revenue if it’s found guilty of breaking EU rules, which could be as high as $27 billion based on Apple’s annual revenue of $274.5 billion last year. Apple could also be forced to change its business model, which has more damaging and lasting effects than a fine.
Spotify has welcomed the initial charges. “Ensuring the iOS platform operates fairly is an urgent task with far-reaching implications,” says Horacio Gutierrez, Spotify’s chief legal officer. “The European Commission’s statement of objections is a critical step toward holding Apple accountable for its anticompetitive behavior, ensuring meaningful choice for all consumers and a level playing field for app developers.”
Apple has also responded to the EU’s findings in a statement to The Verge:
“Spotify has become the largest music subscription service in the world, and we’re proud for the role we played in that. Spotify does not pay Apple any commission on over 99% of their subscribers, and only pays a 15% commission on those remaining subscribers that they acquired through the App Store. At the core of this case is Spotify’s demand they should be able to advertise alternative deals on their iOS app, a practice that no store in the world allows. Once again, they want all the benefits of the App Store but don’t think they should have to pay anything for that. The Commission’s argument on Spotify’s behalf is the opposite of fair competition.”
Central to this entire case is the 30 percent cut that Apple takes on subscriptions. Companies like Netflix and Spotify have long opposed this so-called Apple tax, but Apple has argued that the revenue contributes toward the costs of maintaining the App Store and enforcing its various content, privacy, and security policies.
Spotify previously claimed that Apple uses its App Store to stifle innovation and limit consumer choice in favor of its own Apple Music service. That complaint was followed up with a similar one by Rakuten, alleging that it’s anti-competitive for Apple to take a 30 percent commission on ebooks sold through the App Store while promoting its own Apple Books service.
Epic Games also joined many developers and companies opposing Apple’s App Store policies, and filed an antitrust complaint with the EU earlier this year. It’s part of an ongoing dispute with Apple, after the Fortnite developer publicly criticized Apple’s App Store policies around distribution and payments. This resulted in Epic attempting to circumvent Apple’s 30 percent cut on in-app purchases in Fortnite, and Apple quickly removing the game from its App Store.
Apple has eased some of its policies over the past year, as the pushback against the App Store grows louder. Apple now lets some video streaming apps bypass the App Store cut, and it has reduced its App Store commission rate to 15 percent for any developer that earns less than $1 million in annual revenue.
Update, April 30th 6:30AM ET: Article updated with statements from Apple and Spotify.
Update, April 30th 7:40AM ET: Article updated with additional comments from European commissioner Margrethe Vestager.