European Commission finds Apple distorted competition in the music streaming market via its App Store

By Emmanuel Legrand

The European Commission has determined that Apple has “abused its dominant position” by imposing “mandatory use of Apple’s own in-app purchase mechanism" on music streaming app developers to distribute their apps via Apple’s App Store.    

  In a formal notification to Apple, known as a "statement of objections," the Commission wrote: “The European Commission has informed Apple of its preliminary view that it distorted competition in the music streaming market as it abused its dominant position for the distribution of music streaming apps through its App Store.”

   "The Commission's preliminary view is that Apple's rules distort competition in the market for music streaming services by raising the costs of competing music streaming app developers,” said the Commission in a statement. “This in turn leads to higher prices for consumers for their in-app music subscriptions on iOS devices. In addition, Apple becomes the intermediary for all IAP [in-app purchase] transactions and takes over the billing relationship, as well as related communications for competitors.”

The App Store as a gatekeeper

  The case was initially put before the Commission's competition division following a complaint in 2019 by music streaming service Spotify, which claimed that Apple's App Store acted as a gatekeeper and imposed terms and conditions, such as a 30% fee on subscriptions that did not apply to Apple's own music streaming app.

  Following the complaint, the Commission opened a probe into Apple's App Store in 2020. Apple rejected the findings of the Commission, arguing that Spotify had become "the largest music subscription service in the world, and we’re proud of the role we played in that." Apple accused Spotify of wanting "all the benefits of the App Store but don’t think they should have to pay anything for that.”

  Apple has now the option to respond to the Commission statement of objections in writing or via a hearing. If the Commission confirmed its initial decision, Apple would face a fine and/or the obligation to apply remedies to address the points raised by the Commission.

Apple has a monopoly

  “Our preliminary finding is that Apple exercises considerable market power in the distribution of music streaming apps to owners of Apple devices," said Margrethe Vestager (pictured, below), the European Commissioner for Europe fit for the Digital Age, who oversees the Commission's competition division. "On that market, Apple has a monopoly.”

  Vestager said Apple's case was weakened by the fact that it "not only controls the only access to apps on Apple devices, it also offers a music streaming service, Apple Music, that competes with other apps available in the Apple App Store, such as Spotify or Deezer." Vestager said that the cost of trading through the App Store was then passed on to end users, which can turn into higher subscriptions rates for consumers.

  The Commission is also concerned about the so-called “anti-steering provisions," which "limit the ability of app developers to inform iPhone or iPad users of alternative, cheaper subscriptions available elsewhere."

Hold Apple accountable

  App developers, noted Vestager, have no other option than go through the App Store, which acts as "a gatekeeper," to access users of Apple’s iPhones and iPads. “This significant market power cannot go unchecked as the conditions of access to the Apple App Store are key for the success of app developers,” she said.  

  For Spotify, the Commission findings came as a vindication of its complaint. “The European Commission’s Statement of Objections is a critical step toward holding Apple accountable for its anti-competitive behaviour, ensuring meaningful choice for all consumers and a level playing field for app developers,” reacted Horacio Gutierrez, the Chief Legal Officer at Spotify.

  Alexander Holland, Chief Content and Strategy Officer at Deezer, said the Commission's decision was "first step on a road towards a better competitive landscape for digital services." He added: "We applaud the Commission’s findings today. It’s an important step towards a fair competitive landscape where dominant market players like Apple have to compete with independent companies like Deezer on quality of service, innovation and consumer experience, rather than artificially created barriers and a lack of a level playing field."

[Analysis:
Although expected, the European Commission's decision will no doubt have intended and unintended consequences. The first one is that we can expect Apple to challenge the findings of the initial probe.
  We can also assume that this probably won't change the Commission's perspective. The case made by Commissioner Vestager seems solid enough to go even up to the European Court of Justice. 
  Spotify has all the reason to be satisfied with the decision, as are other music streaming app operators. The key point now will be, if the decision is affirmed, how Apple will react and what kind of remedies will the Cupertino-based company agree to. 
  A simple decision would be, for the sake of a fairer music streaming market, to lift the 30% fee on subscriptions, but the knock-on effect would be that other apps would also ask for similar deals, threatening the App Store's business model.
  For Apple, the timing could not be worse, as it prepares to battle Fortnite in US courts for exactly the same issue. Lawyers for the gaming company will certainly milk the European decision. 
  Apple has a point when it says that Spotify and Fortnite wants all the perks of being on the App Store, reaching out to over 800 million customers, without giving anything in return. However, there is an issue when the App Store is the only go-to place to reach out to the iPhone community.
  Something will have to give, and it will most probably have to come from Apple.

Emmanuel Legrand]