WHAT’S HAPPENED?
The European Union has fined Apple EUR €1.8 billion (USD $1.95 billion) over the “anti-steering policies” it enforced in its Apple App Store, effectively handing Spotify – and other app developers – a major victory in a long-running dispute.
In a decision published on Monday (March 4), the European Commission (EC) declared that Apple – which operates Apple Music, a competitor to Spotify in the music streaming space – had “abus[ed] its dominant position on the market for the distribution of music streaming apps to iPhone and iPad users,” by forbidding app developers “from informing iOS users about alternative and cheaper music subscription services available outside of the app.”
The EC said that Apple’s anti-steering policy violated Article 102(a) of the Treaty on the Functioning of the European Union (TFEU).
“These anti-steering provisions are neither necessary nor proportionate for the protection of Apple’s commercial interests in relation to the App Store on Apple’s smart mobile devices and negatively affect the interests of iOS users, who cannot make informed and effective decisions on where and how to purchase music streaming subscriptions for use on their device,” the EC said in a press release.
It added: “Apple’s conduct, which lasted for almost 10 years, may have led many iOS users to pay significantly higher prices for music streaming subscriptions because of the high commission fee imposed by Apple on developers and passed on to consumers in the form of higher subscription prices for the same service on the Apple App Store.”
The €1.8 billion fine is considerably higher than what had previously been reported. In February, the Financial Times reported that the EC would fine Apple €500 million over its anti-steering policies.
The higher number announced on Monday may have to do with the fact that the EC went beyond its 2006 guidelines for antitrust fines.
The higher amount “was necessary in this case because a significant part of the harm caused by the infringement consists of non-monetary harm, which cannot be properly accounted for under the revenue-based methodology as set out in the Commission’s 2006 Guidelines,” the EC said.
“Apple’s conduct, which lasted for almost 10 years, may have led many iOS users to pay significantly higher prices for music streaming subscriptions because of the high commission fee imposed by Apple on developers and passed on to consumers.”
European Commission
However, Apple could potentially find itself paying out a lot more than the €1.8 billion, because the EC’s ruling allows for companies harmed by Apple’s policy to sue in national courts of European Union member states.
According to the EC, “any person or company affected by anti-competitive behavior as described in this case may bring the matter before the courts of the Member States and seek damages”.
Any damages awarded in those lawsuits would not come out of the EU’s fine on Apple – that money is going into the EU’s general revenue (with some of it going to the UK government as well, given that the investigation into Apple began before the UK had completed its withdrawal from the EU).
In a response to the ruling on Monday, Spotify didn’t offer any hints as to whether it was planning to sue Apple.
“The European Commission (EC) has made its conclusion clear: Apple’s behavior limiting communications to consumers is unlawful,” Spotify said in a statement.
“This decision sends a powerful message – no company, not even a monopoly like Apple, can wield power abusively to control how other companies interact with their customers.”
However, Spotify also argued that Apple has in the past “routinely defied laws and court decisions in other markets,” so the EC ruling “does not solve Apple’s bad behavior towards developers beyond music streaming in other markets around the world. Our work will not be done until we succeed in securing a truly fair digital marketplace everywhere and our commitment to helping to make this a reality remains unwavering.”
Apple shot back at Spotify in its own response to the EC’s decision.
“The primary advocate for this decision – and the biggest beneficiary – is Spotify, a company based in Stockholm, Sweden. Spotify has the largest music streaming app in the world, and has met with the European Commission more than 65 times during this investigation,” Apple said in a statement.
“Today, Spotify has a 56% share of Europe’s music streaming market – more than double their closest competitor’s – and pays Apple nothing for the services that have helped make them one of the most recognizable brands in the world. A large part of their success is due to the App Store, along with all the tools and technology that Spotify uses to build, update, and share their app with Apple users around the world.”
“The primary advocate for this decision – and the biggest beneficiary – is Spotify…. Spotify… has met with the European Commission more than 65 times during this investigation.”
Apple
Additionally, Apple said that it had introduced a new option “years ago in response to feedback from developers like Spotify” to allow certain apps to link users to a website, and Spotify had “chosen not to” use that option.
“Instead, Spotify wants to bend the rules in their favor by embedding subscription prices in their app, without using the App Store’s In-App Purchase system. They want to use Apple’s tools and technologies, distribute on the App Store, and benefit from the trust we’ve built with users – and to pay Apple nothing for it.”
Apple said on Monday that it plans to appeal the EC’s decision. “While we respect the European Commission, the facts simply don’t support this decision,” the company argued.
WHAT’S THE BACKGROUND?
Apple’s assertion that Spotify “pays Apple nothing” in App Store fees is part of an ongoing back-and-forth between the two companies that has been running for a decade at this point, and which escalated in 2019 when Spotify filed an antitrust complaint against Apple with the EC.
That complaint focused on two issues:
- The mandatory use of Apple’s own proprietary in-app purchase system (which is integrated into the Apple Store) for the distribution of paid digital content. Apple charges third-party app developers a 30% commission – derisively called the “app tax” by app developers – on all subscription fees through the store during an app’s first year, and then 15% in all subsequent years. Spotify said at the time that it would have to raise its subscription rates to cover the cost of Apple’s commission.
- Restrictions on the ability of developers to inform users of alternative purchasing possibilities outside of apps, i.e. the “anti-steering policy.” Under that policy, third-party app developers are prevented from informing users of Apple devices about alternative (and often less expensive) ways to pay for their apps – for instance, by going to the app’s own website. Spotify alleged – and the European Commission on Monday confirmed – that app developers weren’t even allowed to send emails to subscribers informing them of other payment methods.
“You know there’s something wrong when Apple makes more off a Spotify subscription than it does off an Apple Music subscription and doesn’t share any of that with the music industry. They want to have their cake and eat everyone else’s too,” Jonathan Prince, then-Head of Global Head of Communications and Public Policy at Spotify, said in 2016.
“You know there’s something wrong when Apple makes more off a Spotify subscription than it does off an Apple Music subscription and doesn’t share any of that with the music industry.”
Jonathan Prince, Spotify (2016)
Apple shot back, arguing that Spotify actually paid far smaller commissions for using the Apple Store, and in fact hadn’t paid any commission at all on any new subscribers gained through the Apple Store in the prior three years.
It asserted that Spotify was paying a 15% commission only on 680,000 subscribers it acquired during 2014-2016, which amounted to around 0.5% of Spotify’s 100 million paying subscribers at the time.
All the same, the European Commission clearly took Spotify’s antitrust complaint seriously, because in 2020, it launched an antitrust investigation into the Apple App Store, with a focus on the two issues Spotify had laid out – the App Store commission and the “anti-steering” policy.
However, in 2023, the EC narrowed the scope of its investigation, eliminating the issue of the App Store commission, thus leaving the dispute over just how much money Spotify pays in commissions to Apple unresolved.
The EC now focused entirely on the anti-steering policy. It was this policy that led to the €1.8 billion fine announced on Monday.
IS APPLE’S ‘ANTI-STEERING’ POLICY AN ISSUE OUTSIDE EUROPE?
Yes, it is, and it has been the subject of a recent court case in the US, launched by Epic Games (the maker of Fortnite) which has also been sparring with Apple over its App Store policies.
This past January, the US Supreme Court declined to hear an appeal of a ruling by a California federal court – one which made neither Apple nor Epic Games and other app developers in the App Store entirely happy.
The Supreme Court in effect left in place the California court’s decision that Apple’s App Store commissions were not a violation of antitrust laws, but also that Apple’s anti-steering policies were a violation of California’s Unfair Competition Law.
It amounted to a partial win for both sides, and, with the EC’s ruling on Monday, it means that on this issue, both US courts and European regulators are in alignment: The App Store fees are fair game, but the anti-steering policy is illegal.
“Apple’s new terms not only disregard both the spirit and letter of the law, but if left unchanged, make a mockery of the DMA and the considerable efforts by the European Commission and EU institutions to make digital markets competitive.”
Spotify, Deezer, Epic Games et al
In the face of all this opposition, Apple recently offered app developers in its store an alternative fee payment structure, but one that many developers – including Spotify and Epic Games – argue isn’t much better than the original “app tax.”
Under this policy, an app developer can sell outside the App Store, but only if they are granted an “external purchase link entitlement” from Apple, and only if they agree to pay a commission to Apple purchases made on the app developers’ own website by Apple device users.
Apple’s “latest move in the US — imposing a 27% fee for transactions made outside of an app on a developer’s website — is outrageous and flies in the face of the court’s efforts to enable greater competition and user choice,” Spotify said in a statement at the time. “This action follows similar moves by Apple to circumvent compliance in South Korea and The Netherlands.”
Apple is also facing pressure on its App Store business model from the European Union’s Digital Markets Act (DMA), which came into effect in November of last year, and requires digital commerce “gatekeepers,” such as Apple, to allow the “sideloading” of apps – that is, to allow Apple device users to install apps from developers’ own websites. It also requires them to allow the use of alternative app stores.
Apple has objected to this policy on user safety grounds, arguing that its App Store keeps users safe from malware and privacy violations when downloading apps – something it can’t guarantee if users download apps directly from developers’ websites.
Many app developers argue that this is just an excuse for Apple to maintain its high fees on developers.
In January Apple offered app developers in Europe an alternative fee structure – one which some developers say is just as problematic as its old policies.
In a letter to the European Commission published on Friday (March 1), a group of app developers and digital industry bodies, including Spotify, Epic Games and Deezer, said that Apple’s “new fee structure in the proposed new terms seems designed to maintain and even amplify Apple’s exploitation of its dominance over app developers. With a hefty transaction fee and a Core Technology Fee (CTF), few app developers will agree to these unjust terms.”
The letter added: “Apple’s new terms not only disregard both the spirit and letter of the law, but if left unchanged, make a mockery of the DMA and the considerable efforts by the European Commission and EU institutions to make digital markets competitive.”
A FINAL THOUGHT…
In the wake of the EC’s ruling, Spotify and other music streaming services operating in Europe now have the option of suing Apple in the courts of EU member states over its decade-plus of anti-steering policies.
According to the EC, “even though the Commission has fined the company concerned, damages may be awarded by national courts without being reduced on account of the Commission fine”.
Apple would have its work cut out for it in such a lawsuit: EU rules state that those courts would have to take the EC’s ruling as a given – that is, they would have to accept in advance that Apple broke antitrust laws.
Even so, it’s unclear how well such a lawsuit would work out for Spotify or other DSPs, because, as the EC itself noted, much of the damage done by Apple’s policy is “non-monetary.”
And even on the monetary side, who can say, exactly, how much revenue music streamers lost by being limited in what they could advertise to their customers on Apple devices? Spotify would no doubt argue it lost untold millions, while Apple could say Spotify lost nothing at all.
All the same, the possibility of a lawsuit against Apple gives Spotify a new tool with which to pressure Apple on its policies. And given how seemingly resistant Apple has been to the EU’s new DMA rules, we can expect the company to fight tooth and nail against any attempt to sue them over anti-steering.
So it’s clear that Spotify may have won this battle, but the war is far from over.
