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And Finally Beef Of The Week Business News Digital
CMU Beef Of The Week #313: Spotify v Apple
By Andy Malt | Published on Friday 8 July 2016
Politics is a funny old game, isn’t it? One moment you can be delivering a speech in which you say things that don’t seem like that big a deal, the next you’re responsible for instigating a major rift between the biggest names in streaming music and a lot of shouting ensues. I am, of course, talking about US Democrat Senator Elizabeth Warren and her recent speech on ‘America’s Monopoly Problem’.
In her speech, Warren singled out Google, Apple and Amazon as US companies that started small, grew into massive multi-national powerhouses, and then sought to use their power to freeze out the next generation of start-ups. In the case of Apple, she said the company “has placed conditions on its rivals that make it difficult for them to offer competitive streaming services”.
Ah, the good old ‘Apple Tax’, everyone assumed she meant. That being the 30% fee Apple takes from developers who take payments through apps distributed via the tech giant’s App Store. Although it applies across the board, it’s a significant problem for streaming services, which already hand over at least 70% of their revenues to the music industry (and generally more like 85%, while revenues aren’t yet big enough to cover minimum guarantees).
The result is that the likes of Spotify, Deezer and Tidal are forced to pass on that extra cost to their customers, if they choose to subscribe through the app, rather than the streaming service’s own website. Apple’s recent concession to drop its cut to 15% after a subscriber has been signed up for a year doesn’t help that much. The fact that Apple rules (unlike on the Google Play app store) prohibit companies from communicating that cheaper subscriptions are available via other platforms is also a particularly contentious point.
And contentious points is what we were interested in here, right? Yes, it is. So after Warren raised her concerns about Apple and the impact their policies are having on rival streaming services, Re/code got straight on the phone to Spotify’s comms boss. “Yo, JP!” the reporter almost certainly began. “How about that Apple Tax, huh?”
“Apple has long used its control of iOS to squash competition in music, driving up the prices of its competitors, inappropriately forbidding us from telling our customers about lower prices, and giving itself unfair advantages across its platform through everything from the lock screen to Siri”, said Jonathan Prince, neither taking on board the jovial tone of this imagined conversation so far, or adhering to efficient sentence structure, something he has now forced me into as well, which is, I am sure, quite annoying for you as a reader, or at least that’s what I would assume.
“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”, he added. “They want to have their cake and eat everyone else’s too”.
Oh yeah, that’s the other problem. The Apple Tax used to be just an annoying thing, and an annoying thing that was generally tolerated, because everyone else in streaming music had the same problem. But then, as the more alert of you might have noticed, last summer Apple launched its own streaming service. And does Apple charge £12.99 a month for in-app subscriptions in line with its competitors? Nope. It’s £9.99 all the way. Which, to the casual (in-app-paying) observer, would make it seem like Apple Music is considerably cheaper than any of the other streaming music services.
When asked about the arrival of a big fat new competitor to the market last year, Spotify has previously bragged that all the launch of Apple Music has done is accelerate its own growth. Meanwhile, label sources told MBW this week that Spotify now has over 37 million paying subscribers, an impressive seven million more than the last official stats brag in March this year, and still significantly more than Apple Music’s fifteen million.
But the Swedish company isn’t currently swaggering around showing off the extra strong braces it had to buy to stop its trousers falling down, thanks to the massive userbase it now keeps in its pockets. And it wasn’t pleased to see Apple either. I’m not sure that metaphor works on any level, does it? Sorry. But what I mean is, the recent official communications from both Spotify and Apple Music have had nothing to do with bragging about user numbers. They’ve been far too busy dissing each other to brag.
As well as Prince’s angry agreement with Senator Warren’s speech, a letter from Spotify general counsel Horacio Gutierrez managed to somehow find its way into Re/code’s hands. The letter was sent at the end of June, after an update to Spotify’s iOS app was rejected by Apple for breaking “business model rules”. The problem, apparently, was that it attempted to circumvent Apple’s system when taking payments.
But Gutierrez accused Apple of acting uncompetitively, saying that the company was “causing grave harm to Spotify and its customers”.
“This latest episode raises serious concerns under both US and EU competition law”, he wrote. “It continues a troubling pattern of behaviour by Apple to exclude and diminish the competitiveness of Spotify on iOS and as a rival to Apple Music, particularly when seen against the backdrop of Apple’s previous anticompetitive conduct aimed at Spotify … we cannot stand by as Apple uses the App Store approval process as a weapon to harm competitors”.
And stand by they have not, I suppose, given the increased shouting on the subject. Though you might note that this beef has been somewhat one-sided so far. Where is Apple in this debate, beyond tedious notes on articles saying that the tech giant had “declined to comment”?
Well, after someone managed to slip and accidentally send Spotify’s legal letter to Re/code, there was another inadvertent email blunder, which saw Apple’s response to Gutierrez end up in the hands of Buzzfeed. I know, it’s almost like magic.
“As a valued developer in the App Store, we’re disappointed with the public attacks you’ve made and welcome the opportunity to set the record straight”, retorted Apple’s top legal type Bruce Sewell patronisingly.
He added that Spotify has “benefitted enormously from its association with Apple’s App Store”, facilitating “over 160 million downloads” of Spotify’s app, “resulting in hundreds of millions of dollars in incremental revenue to Spotify”.
Yeah, that’s a company with £35 billion a year in profit telling another business that has never made a profit to stop worrying about money. Though he does have a point, without the app store and the iPhone, Spotify would not have anything like the subscriber numbers and income it currently does. There is still that issue of that competing streaming service though. Or not, says Sewell.
“Our guidelines help competition, not hurt it”, he insists. “The fact that we compete has never affected how Apple treats Spotify or other successful competitors, like Google Play Music, Tidal, Amazon Music, Pandora or numerous other apps on the App Store the distribute digital music”.
No, it hasn’t, that is true. Though I think the point is that Apple Music still undercuts most of them by not forcing itself to add an extra £3 (or dollars or whatever) to its subscription fee on in-app purchases.
However, continues Sewell, Apple does have extra costs, because it invests a lot of money into making the App Store work. “To imply that Spotify should not have to pay to avail itself of the benefits of Apple’s hard work, just as every other developer does, would give you tremendous advantage over other developers. It’s simply unfair and unreasonable”.
It’s probably worth noting here that another of Spotify’s gripes is that, under App Store rules, developers aren’t allowed to implement flexible pricing. “Which is why we can never provide special offers or discounts [via the app], and means we won’t have the ability to share any savings with our customers [when Apple’s cut drops to 15%]”, Prince told The Verge in June.
That is a key point. A large part of Spotify’s recent growth has been down to offering cheap subscriptions, such as offering 50% off for students, a £14.99 family plan, and a heftily discounted price of 99p for three months. None of which it is able to offer through the App Store. It can’t even mention that these options exist elsewhere. These must remain as much a secret as the standard, non-iOS price of £9.99. There is one price and you pay it from day one in planet iPhone.
Which I guess raises the question, is that why the latest Spotify app update was rejected? Was Spotify flouting the rules and trying to make potential new paying users aware of the numerous pricing options available. No. Or at least not so according to Prince.
Remaining on the offensive in the wake of Sewell’s letter, Prince tweeted a screengrab of the page in the app that apparently got the whole thing rejected. “You discovered a Premium feature”, it says. “You must have a Premium subscription to unlock it”.
“This is what Apple wants you to believe violates their rules”, seethed Prince. “No offer, no purchase, no link to anywhere at all”.
If that really is all it was, then Apple does appear to be in a much weaker position. If anything, it’s potentially doing itself out of more of that money it likes to invest in nailing up the walls of the App Store and putting in new carpets. Though if anyone wants to accidentally send me a letter from Apple explaining why that is not the case, feel free. I will require an extra 30% of text though.
