The EU's Apple antitrust investigation is moving forward

The European Union is today moving forward with its case against Apple, saying that it is potentially in violation of EU law. Competition chief Margrethe Vestager said that her team believes there is enough evidence to open an antitrust case against the iPhone maker. Vestager tweeted that Apple Music “compete [sic] with other music streaming services, but Apple charges high commission fees on rivals in he App Store and forbids them to inform of alternative subscription options.”

Our preliminary conclusion: @Apple is in breach of EU competition law. @AppleMusic compete with other music streaming services. But @Apple charges high commission fees on rivals in the App store & forbids them to inform of alternative subscription options. Consumers losing out.

— Margrethe Vestager (@vestager) April 30, 2021

The Commission has published its Statement of Objections, essentially a list of issues that officials feel warrant further investigation. The document says that Apple’s current policies ”distort competition in the market” by “raising the costs of competing music streaming.” It says that such an act, if found true, would count as a violation of Article 102 of the Treaty on the Functioning of the EU which prohibits "abuse of a dominant market position.”

The EU's case hinges on two points: Apple’s 30-percent cut on the majority of in-app transactions made through the App Store, and the App Store’s “anti-steering provisions.” The former, officials claim, could force Spotify and other rival services to raise their prices or stop offering service, distorting the market. The latter, focuses on how Apple blocks developers from communicating to users about the option of cheaper deals.

In response, Apple issued a statement saying that “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.” It added that Spotify wants “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.”

"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.”

This particular skirmish with the EU began in 2019 when Spotify lodged an official complaint to the EU about how Apple runs its store. The Swedish streaming giant said that Apple wasn't playing fair with its competitors, both financially and technically. In an open letter, Spotify CEO Daniel Ek said that Apple was acting as both “player and referee to deliberately disadvantage other app developers.”

It leveled the charge that the iPhone maker was charging Spotify a 30 percent commission on all in-app purchases. It said that such a fee forced it to raise its price, making it look less competitive compared to other streaming services. Similarly, Spotify took issue with the fact that, at the time, iOS could not use a third-party default and had limited access to products like the Apple Watch or HomePod.

Apple and Google both limit how companies can offer transactions to users, with a prohibition on encouraging “users to use a purchasing method other than in-app purchase.” This is the anti-steering provision that EU has paid specific attention, saying that Apple is limiting the ability of developers of “informing users about such purchasing possibilities, which are usually cheaper.”

It was this block on routing transactions through third parties that Epic Games has made a stand protesting against. The company deliberately added a payment workaround to Fortnite on iOS and Android, in violation of both App Store and Google Play rules. Consequently, the app was removed from both storefronts, and has led to Epic seeking legal recourse.

For its part, Apple has repeatedly said that the fees it charges for the App Store go to maintain its infrastructure, and that the rules are there for everyone’s safety and protection. In a statement made at the time, the company said that “Spotify seeks to keep all the benefits of the App Store ecosystem […] without making any contributions to that marketplace.” It added that Spotify “distribute[s] the music you love while making ever-smaller contributions to the artists, musicians and songwriters who create it."

Broadly speaking, Apple takes a 30 percent cut from all transactions made through the App Store, with few exceptions. “Small” developers making less than $1 million a year through the marketplace only pay a 15 percent cut, with the higher rate kicking in once that threshold has been passed. Similarly, subscription products pay a 30 percent fee in the first year, which falls to 15 percent every subsequent year.

Apple CEO Tim Cook has defended the revenue split, saying that it is common in the industry and several other platforms do the same. Steam and Google, for instance, both do, although, at least in the eyes of Apple’s critics, is that neither Valve nor Google can prevent people from buying and installing apps from alternative sources on PC / Mac or Android. Epic Games, meanwhile, itself a PC-gaming platform to rival Steam, charges a 12 percent cut. Microsoft, which also adopted the 30-percent cut, announced on Thursday that it would reduce its fee to 12 percent, at least for PC games.

Several other companies have also spoken out in support of Spotify’s initial complaint, including Tile, Telegram and Epic Games. The Coalition for App Fairness is a group founded by some of those companies, saying that the current rules on app stores may stifle competition. Spotify CEO Daniel Ek, meanwhile tweeted to say that the EU’s decision today was “one step closer to creating a level playing field.”

Like all EU investigations, this process is likely to take several years, and in a press conference, Vestager said that she had no issue with the 30 percent cut, but the potentially anticompetitive nature of the system as it presently stands.