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Apple says Spotify has exaggerated the impact of its app store fees

By | Published on Tuesday 25 June 2019

Apple

Apple has claimed that it receives a commission on just 680,000 of Spotify’s 100 million premium subscriptions, and that commission is 15%, not 30%. These figures are in the tech giant’s formal response to Spotify’s competition complaint in Europe, in which it disputes the streaming firm’s claims that its app store policies contravene competition law.

Spotify went big when it filed its competition complaint with the European Commission in March, launching a whole website to accompany it. A long time coming, Spotify’s complaint listed various gripes about the way Apple controls access to customers who stream music via an iPhone or iPad, though the biggest moan was about the so called Apple tax.

This is the 30% fee that Apple charges on some purchases made through apps that are operating on its iOS platform. Digital service subscriptions are one of the purchase types where Apple takes a cut, although its commission drops to 15% after twelve months.

For streaming music services, the Apple tax is a problem, because their own profit margin – ie the revenue that they don’t have to hand over to the music industry – is about 30%. Unable, therefore, to swallow Apple’s commission, they have to pass that charge on to the consumer. Which makes it look, to iOS users at least, like all the other streaming services are 30% more expensive than Apple Music.

Now, streaming services operating iOS apps are not obliged to allow users to pay their subscriptions via their phone. So Spotify can send people to its own website, sign up new subscribers there, cut Apple out of the transaction entirely, but still provide its service to the user via Apple devices.

And that’s exactly what Spotify did. Hence why Apple is not now taking 30% of any Spotify subscriptions, because everyone who signed up via the iOS app did so more than a year ago. Meanwhile only 680,000 Spotify subscribers are still paying their subs via the Apple system, which is where it gets to charge its 15% fee.

A key theme of Apple’s response to the EC – actually filed at the end of May – is that Spotify is greatly exaggerating the impact of its app store commission. Both in terms of the what commission is charged (by talking about 30%, even though that no longer applies to any Spotify consumers), and by implying it affects a much bigger slice of its user-base.

Of course, when griping about Apple’s app store policies, Spotify didn’t just moan about the existence of the Apple tax, but also about other rules around the way you can communicate to customers via your iOS app. Yes, Spotify can – as it did – stop taking payments via its app to avoid paying Apple its cut. But it can’t clearly instruct iPhone-owning users about how they should go about signing up for a premium account elsewhere on the net.

Given that for Spotify the freemium level is in many ways a loss-leader to sign up premium subscribers – and given that Spotify’s free service is most limited on mobile devices, limitations designed to make premium more attractive – ideally you want to make it as easy as possible for freebie users to go premium on their phone.

However, once you cut Apple out as a transaction partner, you can’t directly link iOS freebie users through to other payment platforms. So you’re reliant on those users having the inclination to open a browser, go to spotify.com and go through the payment process on that site.

Therefore, Spotify would likely counter to Apple’s submission, yes the Apple tax may now apply to a small minority of its users, but by avoiding paying its rival a 15-30% fee on more subscriptions, it had to make it much harder for freebie users to become paying users on their mobiles. Which could have a negative impact on overall premium sign-ups.

In addition to Apple’s line that Spotify has been exaggerating the impact of its app store fees and policies, it also continues to claim that its rival is just trying to get a free ride. Spotify, the argument goes, wants to continue utilising an operating system and app framework that Apple paid to build without contributing to the costs of running that platform.

In a blog post responding to Spotify’s original EC complaint in March, Apple wrote: “Spotify wouldn’t be the business they are today without the App Store ecosystem. But now they’re leveraging their scale to avoid contributing to maintaining that ecosystem for the next generation of app entrepreneurs. We think that’s wrong”.



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