Just when we thought things were winding down with the Apple antitrust allegations, news of an Apple EU fine has stirred the pot once more. After tiring of various App Store restrictions that limited in-app transactions, Spotify had filed an antitrust complaint against Apple in 2019.
Following up on the case this year, the European Commission concluded that the App Store restrictions were unfair to competitors, preventing streaming platforms like Spotify from bringing cheaper payment options to their customers. As a result of this Apple-Spotify antitrust case, the iPhone maker was just asked to pay €1.84 billion euros, approximately $2 billion USD, as a penalty for the policies.
We were only days away from seeing Apple’s DMA compliance, which they stated “required us to change the uniquely successful approach that we’ve employed to protect users’ security and privacy and keep them safe.” The reluctance is evident but Apple agreed to enable side-loading of apps and allow alternate payment avenues to put an end to the Apple-EU antitrust claims. It seems that this wasn’t enough to discourage the Apple EU fine from hitting them while they were down.
Everything You Need to Know About the Apple-EU Fine and the Antitrust Allegations
The €1.84 billion euro Apple-EU fine is not the first instance of Apple ramming heads with the European Union and coming out defeated from the confrontation. Despite the company’s best efforts to stand up for its policies, it has been accused of enforcing App Store restrictions that have stifled competition time and time again. If these allegations were flung by another company, Apple could have easily brushed it off and kicked the company off its app roster like it did with Epic Games. Unfortunately, the EU paints a much more imposing figure considering that law violations by Apple could result in the company being banned from the entire region, which would very significantly tank their revenue.
What Is the Apple EU Fine For?
The Apple-Spotify antitrust case is one instance of Apple “abusing its dominant position” according to Margrethe Vestager, Executive Vice-President of the European Commission EU fit for Digital Age” and Commissioner for Competition. Music streaming platform Spotify believes that Apple’s App Store dominance prevented them from communicating with consumers via the app and providing them with cheaper payment alternatives for the services they wanted to use. In response to the ruling, Spotify stated that while Apple Music continued on unrestricted, “Apple’s rules muzzled Spotify and other music streaming services from sharing with our users directly in our app about various benefits—denying us the ability to communicate with them about how to upgrade and the price of subscriptions, promotions, discounts, or numerous other perks.”
Today, @EU_Commission has fined @Apple 1.84 bn € for abusing its dominant position on the market for the distribution of #music #streaming #apps.
👉@Apple illegally restricted #app developers’ ability to inform #users about cheaper options to buy🎶, outside the🍏ecosystem.
— Margrethe Vestager (@vestager) March 4, 2024
Spotify’s stand against Apple began to take shape in 2015 according to Apple, with 65 meetings with the EU Commission to build a case against the company. Now, with the Apple DMA compliance efforts already at the center of the discussion, it became much easier to formalize a case against Apple and state that the proffered change in the App Store rules was insufficient to really make a difference.
Stating that Apple’s restrictions could be seen as creating unfair trading conditions similar to the antitrust case in 2021, the Apple-EU fine was set at an amount that represented the third-biggest penalty by the EU according to Reuters. Sources had expected a more modest €500 million euro fine but the European Union wanted to make a point. A basic fine of €40 million euros was placed, along with a €1.8 billion euro deterrent that totaled up to €1.84 billion euros, which is 0.5 percent of the company’s global turnover. Small change for Apple but still enough to make a statement. Apple has stated that it will appeal the decision, which will likely involve a long-drawn-out battle for the company.
What Is the DMA and Why Are We Talking about Apple’s DMA Compliance?
The Digital Markets Act is a law by the European Union that focuses on bringing better regulations to the digital sector and maintaining a fair standard for every player that wants to sell to the European regions. The DMA focuses on identifying “gatekeepers” who maintain a monopoly on the market block healthy competition from taking place, and guide them towards adopting better practices that meet their regulations. There is a nifty timer on the website counting down to March 8, 2024, the deadline by which the identified companies have to finish reworking their policies to adhere to the EU’s rules.
Non-compliance with the DMA regulations could lead to fines of up to 10 percent of the company’s total worldwide turnover, moving to 20 percent with repeated infringements. There could be periodic payment enforced, as well as additional remedies proportional to the offenses that are committed by the violating party. The latest Apple EU fine is perhaps a glimpse of what is to come for companies that do not comply.
The list of do’s and don’ts listed by the EU isn’t all that extensive, but they require very significant changes to company policy that require a complete overhaul of how some businesses work. Case in point, one of the Apple DMA compliance requirements was for the company to allow third-party app downloads on iOS devices instead of the App Store being the only app provider. Apple claimed that this would be a major security violation for its users but it has agreed to make the change anyway. Changing the App Store rules, they introduced an additional Notarization process that will be followed to analyze apps and check that they are free of malware before allowing for the download. This is only one of the changes the company is making to adhere to the DMA.
What is the Apple Tax?
The problem at the center of the Apple-EU antitrust complaints is the innocuous-sounding Apple Tax. The term is used to discuss the commission fee that Apple charges app developers for putting an app on the App Store for iOS users to interact with. Any apps that users pay to use or any in-app transactions that are conducted are required to go through Apple and the company places a 30 percent tax on it for facilitating the transaction. It is quite fair for Apple to ask for a cut of the money considering their role in creating a platform where this transaction becomes possible, but 30 percent is quite a high amount, especially for smaller developers who likely don’t earn too much from these transactions, to begin with.
In categories where the transaction is for a physical product like an Uber ride, there is no Apple tax involved in the transaction. Additionally, for subscription services that rack up continuous payments, the 30 percent charge applies for the first year, following which it falls to 15 percent. There are some exceptions to the rules that have been negotiated with Apple but the Apple Tax in general has been seen as poor in taste, despite it being the standard across industries right now.
There are ways companies work around this system, such as allowing developers to advertise alternate payment methods through email or allowing them to add a link to the browser for payment but these aren’t available for all apps equally. Companies need to put in a request to identify as a “reader app” that can add links for external payment methods. The Apple Spotify antitrust case went forward because Spotify remains unsatisfied.
What is Spotify’s Stake in the Apple-Spotify Antitrust Case?
While the Apple Tax and the resistance to EU regulations are a big deal for smaller app developers who really struggle with breaking even considering these additional expenses, it is a little ironic to see Spotify leading the fight for consumers considering how a majority of their changes focus on taking all they can from consumers. Statista reports that Spotify had 30.6 percent of the global subscriber market share for music streaming in 2021. Apple claims Spotify currently has a 50 percent share of the European market. The company has a subscription model for its services but users are directed to the website to make payments for it, leaving Apple out of the transaction.
Still, despite its successes, Spotify feels that Apple’s anticompetitive practice prevents users from having an authentic in-app experience and takes away their freedom of choice. Even with the Apple DMA compliance plan, they feel the accommodations only provide a false choice to developers and are inherently insufficient to comply with the EU regulations that have been put in place. Spotify released an open letter signed by 33 other companies that questioned Apple’s new terms and their disregard for the Digital Markets Act.
With what can only be seen as a passive-aggressive call for the EU to challenge Apple or risk compromising its integrity, Spotify also stated that action against Apple will be the “only way to guarantee the DMA remains both credible and delivers competitive digital markets.” Deezer, Epic Games, Proton, Threema, and SkyDemon are some of the other signatories on the open letter.
How did Apple Respond?
The Apple-EU fine has most decidedly upset the company. They released quite an extensive post themselves that states, “Free isn’t enough for Spotify. They also want to rewrite the rules of the App Store — in a way that advantages them even more.” Further down, Apple writes, “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.” There doesn’t seem to be any room for reconciliation between Apple and Spotify and it seems that things will only heat up depending on how the EU handles Apple after the DMA deadline passes by.
Speaking about the Apple-Spotify antitrust decision by the EU, Apple states that the regulators on this decision could not provide any evidence of consumer harm or anti-competitive behavior considering that the streaming market is thriving with no policy of Apple holding it back from growth. The company claims that the decision was been passed even before the DMA officially became law and that it “is not grounded in existing competition law.” This could be quite solid grounds for appeal considering the slap on the wrist was meted out on the basis of policies that Apple has already agreed to change. The decision does not respond to the updated policy that will go into effect on March 7, 2024.
The App Store dominance is unlikely to disappear even with the EU regulations but Apple does seem to be doing its best to give away as little as it can to competitors. The latest EU fine will probably take years to appeal. In addition, within a few days, we could soon see more charges laid against the company if their updated policies remain unsatisfactory. It also feels odd to see Spotify play as the voice for the small guys because its own policies have long been considered particularly unhelp for the small artists who use the platform, however, a win is a win if it means that app developers have an easier time putting their app offerings out for customers to enjoy.