No Winners in a War: Spotify vs Apple
This June, the European Union Commission opened an official investigation into Apple after Spotify lodged a complaint.
“Apple shouldn’t be able to use their power to give themselves an unfair advantage — harming fans like you and companies like us”, reads Spotify’s custom website, titled ‘Time to Play Fair’. The multi-billion streaming behemoth outlines Apple’s unjust treatment of the company and provides an in-depth look at how Apple has been taking a bigoted stance against them for a long time, which finally prompted them to file a complaint with the European Union in March 2019.
The root of the issue is the 30 percent cut which Apple charges from all developers for subscriptions made through the iOS app. Spotify believes that this ‘Apple Tax’ is quashing competition by making others pay an extra fee, which their own apps are exempted from. This means that Apple can price their plans at prices lower than those offered by Spotify or other competitors.
To avoid paying the cut, Spotify opted out of Apple’s in-App Purchase system, which now meant that new subscribers could only sign up from their desktop website. Although a little inconvenient, it posed a somewhat elegant solution to Spotify’s problems. However, latent friction between the two still lingered on: Spotify claims that Apple went on a series of subsequent app rejections and kept changing the App Store guidelines arbitrarily, making it increasingly difficult for Spotify to guide customers to their website and sign up for a Premium membership.
Apple, unsurprisingly, is playing its cards as the irreproachable defendant here. In a March 2019 press release, Apple stated that they’ve approved over 200 app updates to Spotify and only requested adjustments when they tried to evade rules that all other developers abide by on the platform. Apple says 84% of the apps on the App Store don’t pay anything to them; only apps which make use of Apple’s proprietary secure payment system inside the iOS applications have to pay a 30% commission on the users’ subscription fee for the first year, and then 15% for the subsequent years. In other words, Apple pleads they’re playing fair, it is Spotify who do not like the rules.
Apple and Antitrust
The very design of Apple’s (as well as Google’s) app stores and payment systems came under fire in the recent antitrust hearing at the US Congress. When questioned by the House members about the pricing monopoly, CEO Tim Cook replied that Apple had never increased its commission share since App Store’s inception in 2008. However, the members touched upon a number of instances when Apple had removed rival apps from the Store. The 400-plus page report published by the Committee on October 6 is a heavily critical censure of how tech companies, including Amazon, Google, Facebook and Apple abuse their dominance in the market. Congress members anticipate a signed legislation as early as next year, which could mean serious consequences for all four companies involved.
Spotify, headquartered in Stockholm, hopes for an even aggressive outcome in its lawsuit with the EU. To put it simply, the EU strongly values market competition, and European laws are known to be harsher on antitrust issues. However, as Apple points out in their press report, there’s another angle to this case which Spotify might have overlooked.
Spotify and Music
In December 2018, the US Copyright Royalty Board (CRB) raised the royalty rates from 10.5 percent to 15.1 percent for the next five-year period. Spotify, along with other streaming services like Amazon, Google and Pandora moved the Court of Appeals to review this decision three months later (around the same time that they sued Apple). Spotify insists that it was only looking for a clarification on what these increased rates would encompass. However, officials such as the CEO of National Music Publisher’s Association (NMPA) were enraged, and entertainment lawyer Jeff Becker told The Verge that these services are ultimately looking to preserve their bottom line. What’s interesting to note is that Apple sat this entire proceeding out, agreeing to pay whatever rates the CRB decides on.
It becomes clear what Apple is trying to do here: Portray Spotify as an organisation that keeps trying to altercate established rules for its own benefit. Apple even went on to condemn Spotify’s decision to appeal against the CRB’s order, saying, “This isn’t just wrong, it represents a real, meaningful and damaging step backwards for the music industry.” Taking a look at some of Spotify’s latest antics, they aren’t completely wrong, and Apple is looking to capitalise by positioning itself on the right side of the music industry.
For quite some time now, Spotify has been trying to push a ‘pay-for-play’ model on music artists and labels. It’s asking them to pay for advertisements of new releases, which will lead the users to a Spotify link. While this may be feasible for major labels and artists — so far, artists like The Weeknd and Justin Bieber have signed up — it comes as a huge blow for independent artists and indie record labels who just cannot afford to pay for such schemes (Spotify recommends spending at least $5000 for each campaign). Then comes the deeply problematic statements made by Spotify CEO Daniel Ek. In an interview in July, he said, “Artists cannot record music once every three to four years and think that’s going to be enough.” Not only is asking artists to be more productive shifting the focus towards quantity over quality, it lays bare the fact that Ek and his company treat music and its creators as a dispensable commodity.
That’s not where the problems for these two giants end. Last week, news broke that the UK government is set to launch an inquiry into what musicians are paid by streaming services. BBC News reports that Apple pays around $0.008 per stream, which is significantly more than what Spotify does, ranging between $0.003 and $0.005 per stream. However, the bulk of these payments do not go to the musicians directly, who have to share the rights with multiple parties and may end up receiving as little as 13 percent of the total payouts. English violinist Tasmin Little recently claimed that she received just £12.34 (around $16) over six months, for roughly 5–6 million Spotify streams. With live concerts and tours—the primary source of artists’ income rendered redundant due to the pandemic, calls for a revision of the payout system are timely and welcome.
Even after paying so little to artists, in Q2 of 2020, Spotify posted a loss of $419 million, and is feeling the pressure from its shareholders to turn in profits. Daniel Ek says that the company is currently focusing on growth and not profits, but this begs the question if the streaming business model is even viable? Apple, the most valuable company in the world, with multiple other high-income revenue streams can afford to sustain its music streaming venture, claiming more than 70 percent of its revenue from Apple Music goes to labels, musicians and other rights holders. Spotify, for what it’s worth, is still the leading streaming service in the world with nearly 140 million premium subscribers and is almost too big to fail, but its recent hardships pose a looming question mark over the subscription business and its future.
With both companies coming under scrutiny from different high-profile organisations across the globe, the results don’t look promising for either. Apple is likely to face more flak for its App Store monopoly and counter-competitive behaviour from the US Congress as well as the EU, while Spotify could suffer even more losses in case a much-needed regulation on royalties and per-stream rates is enforced. In a world where these outcomes were to come to fruition, the only ones who stand a chance of walking away with something are the artists and the consumers.
