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Apple’s App Store rules back in spotlight in both Europe and the US thanks to Spotify and Fortnite

By | Published on Tuesday 4 May 2021

Apple

Apple’s App Store rules have been back in the spotlight in recent days thanks to a Statement Of Objections being issued by the European Union as part of its Spotify-instigated investigation into the tech giant’s app policies, and the arrival of the the big Apple v Epic Games legal battle in the American courts.

Both Spotify and ‘Fortnite’ maker Epic have been very vocal in recent years about their opposition to Apple’s App Store rules and in particular what they say about taking payments via an iOS app. Such transactions have to go through Apple’s proprietary payment system – which charges a 15-30% commission – and app makers are not allowed to overtly direct people to other places online where payments can be made, such as via a web browser.

Given that Spotify already passes up to 70% of its revenues over to the music industry, if it uses Apple’s payment systems it has to pass the extra charge onto the customer. That would mean that, within the Apple ecosystem, it would look like Spotify’s music service is 15-30% more expensive than Apple’s own music service. The other option is to not allow users to sign up for a premium subscription via the Spotify iOS app, but that makes it harder to convert free users into paying users, and such upselling is a key objective of the Spotify business model.

Spotify took its grievances over Apple’s app policies public in 2019 by launching a website outlining its arguments as to why those policies are anti-competitive and also filing a formal complaint with the competition law regulator within the EU.

Meanwhile, Epic went to war over the App Store rules last summer, first by adding an alternative payment option to the ‘Fortnite’ app, resulting in said app being kicked out of Apple’s store. It then launched a PR offensive against the tech giant and began legal proceedings in multiple countries.

The lawsuit Epic filed in California reached court yesterday, with the gaming firm’s CEO Tim Sweeney taking to the stand. According to Law360, he told the court that Apple’s App Store rules have become ever more restrictive over the last ten years and that, as a result of the payment rules, the tech giant makes more money selling apps developed by third parties than the third parties developing said apps.

Earlier legal reps for Epic told the court that Apple’s polices are monopolistic and are not, as the tech giant will likely argue, partly to do with ensuring the security of payments made on its devices, but instead they are entirely about maximising Apple Inc’s profits.

For its part, Apple argues that companies like Spotify and Epic have in part built their businesses on the back of the platforms and infrastructure it has spent billions developing, and that now they just don’t want to pay a fair rate for utilising those platforms and that infrastructure. In court yesterday, Apple’s legal reps also argued that the rates charged by Apple’s App Store are very much inline with industry standards, adding that there is competition in the market place because Epic’s customers can always play their games on other devices.

Apple will also try to sully the reputation of Epic as part of this legal battle by repeatedly pointing out that the gaming firm deliberately and knowingly breached its contract with the tech giant when it added the alternative payment option to ‘Fortnite’ last year. Indeed, legal reps for Apple made that very point during yesterday’s hearing.

It remains to be seen which way this legal battle ultimately goes, but in Europe the EU’s competition regulator last week told Apple that its “preliminary view” is that the firm is abusing the dominant position of its App Store to distort competition in the music streaming market.

As part of the ongoing EU investigation into Spotify’s complaint against Apple, the European Commission last week published its Statement Of Objections. In it, it criticised both the rule that forces app developers to use Apple’s payment system and the rule that stops those developers from highlighting alternative payment options from within an app.

It said: “The Commission’s preliminary view is that Apple’s rules distort competition in the market for music streaming services by raising the costs of competing music streaming app developers. This in turn leads to higher prices for consumers for their in-app music subscriptions on iOS devices. In addition, Apple becomes the intermediary for all in-app purchase transactions and takes over the billing relationship, as well as related communications for competitors”.

Commenting on that position, the European Commissioner in charge of competition policy, Margrethe Vestager, said: “App stores play a central role in today’s digital economy. We can now do our shopping, access news, music or movies via apps instead of visiting websites. Our preliminary finding is that Apple is a gatekeeper to users of iPhones and iPads via the App Store. With Apple Music, Apple also competes with music streaming providers”.

“By setting strict rules on the App Store that disadvantage competing music streaming services, Apple deprives users of cheaper music streaming choices and distorts competition”, she went on. “This is done by charging high commission fees on each transaction in the App store for rivals and by forbidding them from informing their customers of alternative subscription options”.

Once a Statement Of Objections has been issued, the recipient can then respond in writing or request an oral hearing. So Apple can still formally push back against these formal criticisms from EU officials, which it almost certainly will do. Though the preliminary conclusions of the European regulator certainly piles more pressure on the tech giant.

Needless to say, Spotify welcomed the latest development. Its Chief Legal Officer, Horacio Gutierrez, told reporters: “Ensuring the iOS platform operates fairly is an urgent task with far-reaching implications. The European Commission’s Statement Of Objections is a critical step toward holding Apple accountable for its anticompetitive behaviour, ensuring meaningful choice for all consumers and a level playing field for app developers”.

The move was also welcomed by another Apple Music competitor, Deezer, whose Chief Content And Strategy Officer Alexander Holland stated: “We applaud the Commission’s findings today. It’s an important step towards a fair competitive landscape where dominant market players like Apple have to compete with independent companies like Deezer on quality of service, innovation and consumer experience, rather than artificially created barriers and a lack of a level playing field”.

“We work closely with Apple, and Deezer is one of the many entertainment companies that help Apple’s ecosystem with its diversity and consumer choice”, he went on. “Hopefully, today’s statement is the first step on a road towards a better competitive landscape for digital services. Consumers benefit from fair competition through better and more diverse offers, features and content. While this is only the first step on a longer journey, we are happy that the Commission is acting in the interests of healthy European competition”.

Apple predictably stood its ground in its reaction. A spokesperson said: “Spotify has become the largest music subscription service in the world, and we’re proud for the role we played in that. Spotify does not pay Apple any commission on over 99% of their subscribers, and only pays a 15% commission on those remaining subscribers that they acquired through the App Store”.

“At the core of this case is Spotify’s demand they should be able to advertise alternative deals on their iOS app, a practice that no store in the world allows. Once again, they want all the benefits of the App Store but don’t think they should have to pay anything for that. The Commission’s argument on Spotify’s behalf is the opposite of fair competition”.

We will watch with interest how this all develops on both sides of the Atlantic.



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