Apple vs Spotify – Storm in a teacup.

Apple’s response is unlikely to hold water.

• Apple is just one of a list of larger US tech companies under scrutiny by EU competition authorities, but I think its response to Spotify’s complaint will not hold much water with the EU.
• The whole dispute revolves around what is referred to as the “App Store Tax” which is the 30% share of revenues that Apple forces developers to pay in return for being present on iOS devices.
• Spotify’s position has been that this is anti-competitive, as it makes Spotify’s service more expensive to the user when compared to Apple Music and therefore unfairly advantaged.
• It is on this basis that Spotify has formally complained to the EU.
• Apple’s response is effectively: Spotify does not pay 30% tax it only pays 15% tax and only 0.5% of its 100m subscribers that pay the tax which is around 680,000 users.
• However, I think that the EU will take a fairly dim view of this defence because it looks like Apple has fallen foul of both of the EU’s definitions of abuse.
• In order to be guilty of market abuse a company needs to be shown to be dominant in its market and has then used that dominance to advantage itself to the detriment of consumers.
• It is the consumer that matters in these sorts of cases as that is what the EU is supposed to be there to represent.
• Spotify goes on to complain about Apple switching off its ability to update its app but this did not last long and it is easily argued that Spotify had violated Apple’s policy around paying for services on iOS.
• To the EU’s definition of market abuse:
  • First, dominance: There is not a hard and fast definition of dominance meaning that the EU can decide what is dominant and what is not.
  • Although Apple’s market share in smartphones is quite low in Europe, it is not very difficult to argue that the market has fragmented into price tiers.
  • Within the upper price tier, Apple can easily be deemed to be dominant.
  • This means that Spotify (or anyone else) has no choice to but to develop for Apple to access that market segment.
  • Second, harm: This is an easy one.
  • The fact that only 0.5% of Spotify’s users are being harmed is irrelevant as the question is whether or not users are being harmed.
  • How many are being harmed is less relevant.
  • Apple admits that 680,000 users are paying more for Spotify’s service on iOS and are therefore are being harmed by Apple’s policies with regard to its app store.
• It is the issue of harm where I think Apple is on very shaky ground as it has virtually admitted to it in the course of its defence.
• However, this issue is now entirely historical as Spotify switched off the ability to buy the service through the app in 2016 and none of the users who have joined since then are part of this complaint.
• Hence, I think after a lengthy process with endless appeals and consultation periods, Apple will get a slap on the wrist and an insignificant fine that no one will notice.
• This may have some ramifications for what developers pay to the platform companies to access their platforms but this battle being fought now.
• At the forefront of this battle is Epic Games which is using the tremendous popularity of Fortnite to put real pressure on both Google Play and Steam (see here).
• Hence, by the time the EU process against Apple is complete, the battle between developers and the platforms will have most likely long since been completed.
• I see significant downside to the 70/30 revenue share in favour of the developer.
• If Epic Games was listed, this is one I would be looking very closely at.