The European Union has fined Apple more than €1.8 billion for “abusing its dominant position” in relation to the distribution of music streaming apps for iOS devices. The fine – nearly four times bigger than initially reported and the third biggest fine ever imposed by the EU in relation to a breach of competition law – is the outcome of an investigation that was kickstarted by a complaint from Spotify.
“For a decade, Apple abused its dominant position in the market for the distribution of music streaming apps through the App Store”, says Margrethe Vestager, Executive Vice-President in charge of competition policy at the European Commission. “They did so by restricting developers from informing consumers about alternative, cheaper music services available outside of the Apple ecosystem. This is illegal under EU antitrust rules, so today we have fined Apple over €1.8 billion”.
Apple will appeal the fine – which is roughly 1.36% of its $143.5 billion of current assets, often referred to as Apple’s “cash pile” – resulting in years of legal wrangling. Though for Spotify the more important part of today’s announcement is the EC’s order that Apple should axe the App Store rules that stop app developers from sign-posting payment options outside of their apps.
That said, it remains to be seen how Apple complies with that order and to what extent it is useful for Spotify and other app developers. Apple has already amended those rules in order to comply with the new EU Digital Markets Act. However, it has introduced extra conditions which, Spotify says, means app developers are no better off. So the new order from the EC will only have an impact if Apple is also prohibited from applying any new additional conditions.
Spotify, and others, have long criticised the App Store rule that forces many app developers to take in-app payments via Apple’s own commission-charging transactions system. They also oppose Apple’s anti-steering provisions, which is what stops the sign-posting within an app of other payment options. So, for example, Spotify can’t direct users to its website for payments, where it can sell subscriptions or other digital products without paying any commission to Apple.
It was the anti-steering provision that became the focus of the EC’s investigation, which began with a formal complaint from Spotify in 2019. “The Commission’s investigation found that Apple bans music streaming app developers from fully informing iOS users about alternative and cheaper music subscription services available outside of the app and from providing any instructions about how to subscribe to such offers”, the EC said this morning.
Given Apple’s initial commission on in-app payments would pretty much wipe out Spotify’s profit margin, the streaming service basically had two choices. Either to pass Apple’s commission onto the customer, making Spotify look more expensive than Apple Music. Or to not allow people to sign-up for premium within its iOS app, negatively impacting user experience. Spotify initially passed the commission on and then stopped selling premium subscriptions in-app.
The EC reckons that the outcome of either approach negatively impacts consumers. Option one “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”. With option two there was “non-monetary harm in the form of a degraded user experience”.
“Today’s decision concludes that Apple’s anti-steering provisions amount to unfair trading conditions, in breach of Article 102(a) of the Treaty On The Functioning Of The European Union”, the EU’s statement continues. “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”.
In calculating the €1.8 billion fine, the EC says it “took into account the duration and gravity of the infringement” and the fact that “Apple submitted incorrect information in the framework of the administrative procedure”. Perhaps most importantly, it considered Apple’s massive turnover and market capitalisation, which means a mega-fine is required if it is to be any kind of deterrent.
Beyond the fine element, the EC also says that it has “ordered Apple to remove the anti-steering provisions and to refrain from repeating the infringement or from adopting practices with an equivalent object or effect in the future”.
While that order is more important than the fine to Spotify, it remains to be seen how Apple goes about complying with it. In theory the Digital Markets Act – which goes fully into effect this month – forces a similar change to the rules. But Apple has added new conditions for app developers sign-posting other payment options which, Spotify argues, means it is no better off.
And it’s not only Spotify taking that position. Last week an assortment of other tech companies and trade organisations – including Deezer and trade group Digital Music Europe – joined Spotify in signing an open letter which declared that “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”.
It remains to be seen the extent to which the new order from the European Commission forces Apple to change its anti-steering rules in a way that is actually useful to Spotify et al, while it continues to appeal the ruling and the mega-fine.