Earlier this week Spotify lodged an official complaint against Apple for its anti-competitive practices in the app stores and with its various devices like the Homepod, watch and Siri. In doing so, Spotify launched a big media campaign with a website and videos to try and turn the tide against Apple, especially against its “app tax,” where companies have to pay 30% tax on sales through the app store to Apple. Now Apple is responding with a very lengthy post that breaks down each of their talking points and tries to rebut them with one of their own. Let’s try and parse this out and see what to make of it all.
The releases says that Spotify, “seeks to keep all the benefits of the App Store ecosystem ... without making any contributions to that marketplace." It then claims that Spotify is trying to sidestep the same rules that every other app follows. These are the same rules that Spotify is seeking to change, so there is a major sticking point. Spotify thinks the rules are broken; Apple doesn’t like Spotify is trying to work around them.
Apple says that it reached out to Spotify about Siri and Airplay 2 support and have been told Spotify is working on it. This could be because it is hard to comply with their rules, but it is difficult to know. Spotify is integrated into Apple Carplay and the Spotify Watch app is number one in its category after being approved shortly it was submitted in September 2018. Apple has approved almost 200 updates and Spotify has been downloaded over 300 million times.
Apple claims 84% of apps pay nothing to Apple when you download or use the app, including Spotify’s own ad-supported app. Apple claims, “only a tiny fraction of their subscriptions fall under Apple’s revenue-sharing model. Spotify is asking for that number to be zero.” That isn’t exactly true since Spotify hit 96 million paid subscribers in February, though it isn’t clear how many come through the app store.
Apple then lays out the services it provides to justify the 30% tax on app purchases, which then goes down to 15% every year after, something Ek did not mention.
‘We provide the platform by which users download and update their app. We share critical software development tools to support Spotify’s app building. And we built a secure payment system — no small undertaking — which allows users to have faith in in-app transactions.”
This is important, but there are no alternatives for companies to use with Apple. They are locked into the company’s ecosystem from software to payment systems, which could help Ek’s case with the EU.
Now the kicker comes at the end when they really try and go after Spotify over current events.
Apple notes that this is more than just a fight over tech, but about music. “Underneath the rhetoric, Spotify’s aim is to make more money off others’ work. And it’s not just the App Store that they’re trying to squeeze — it’s also artists, musicians and songwriters.” They also repeat the false claim that Spotify is "suing songwriters," which isn't true.
Apple is referencing Spotify’s recent decision joined by Google, Amazon and Pandora to appeal a decision by the U.S. Copyright Royalty Board to raise songwriter royalty rates by 44%. Apple Music declined to appeal the decision.
As Apple says, “This isn’t just wrong, it represents a real, meaningful and damaging step backwards for the music industry.”
Spotify justified its decision saying “The CRB rate structure is complex and there were significant flaws in how it was set.” It also justified its decision saying that it would make offering bundles harder and this might hurt streaming growth, especially since labels likely won’t reduce licensing rates.
This will probably get worse before it gets better, but the battle lines seem to have been drawn. The European Commission has gone after Apple before over tax purposes and been in the mood to battle big tech of late, so we will see which company they want to side with. This will have a major impact on how apps are distributed and even how streaming is done if it gets even more involved on the music side of things.