The European Union has fined Apple €1.84 billion (just under $2BN) for breaching antitrust rules in the market for music streaming services on its mobile platform, iOS.
The penalty is focused on Apple’s application of anti-steering provisions, which put restrictions on music streaming apps’ abilities to tell consumers about cheaper offers outside Apple’s App Store.
The iPhone maker has its own music streaming service, Apple Music, and rivals — such as Spotify — have argued the restrictions put them at a disadvantage compared to the iOS and App Store operator.
Today the Commission said the restriction had prevented European consumers from making a free choice.
“Apple’s rules ended up in harming consumers,” said the EU’s competition chief, Margrethe Vestager, speaking during a Commission press conference to announce the decision. “Critical information was withheld so that consumer could not effectively use or make informed choices.
“Some consumers may have paid more, because they were unaware that they could pay less if they subscribed outside of app. And other consumers may not have managed at all to subscribe to their preferred music streaming provider because they simply couldn’t find it.”
“The Commission found that Apple’s rules result in withholding key information on prices and features of services from consumers. As such they are neither necessary nor proportionate for the provision of the App Store on Apple’s mobile devices,” she added. “We therefore consider them to be unfair trading conditions as they were unilaterally imposed by a dominant company.”
The penalty follows a March 2019 antitrust complaint by Spotify — which argued Apple’s App Store rules “purposely limit choice and stifle innovation at the expense of the user experience”, and accused the iPhone maker of deliberately disadvantaging other app developers by being both “a player and referee”.
Back in June 2020, the EU announced a formal antitrust investigation of the App Store — saying then that it was concerned conditions and restrictions applied by the tech giant, such as anti-steering provisions preventing developers from informing users of cheaper ways to pay for content outside Apple’s store, may be distorting competition.
A formal EU statement of objections duly followed, in April 2021, when the Commission accused Apple of operating its App Store in a way that distorts competition in the market for music streaming services.
However almost two years after that the EU refined the case — issuing a revised statement of objections which dropped an earlier charge related to Apple’s requirement that music streaming apps use its own payment processing tech and fully focused on the anti-steering provisions.
Last month, the FT reported Apple was facing a €500M antitrust penalty over music streaming. But the fine announced by the Commission today is considerably higher. The penalty breaks down into a fine on Apple for breaching the EU’s rules — of around €40M — but on top of that Vestager said a “lump sum” has been added (i.e. €1.8BN) to “account for the non-monetary harm caused to consumers and to achieve deterrence”.
“The fine we impose today reflects both Apple’s financial power and the harm that Apple’s conduct inflicted on millions of European users,” she said, noting that the total penalty represents 0.5% of the iPhone maker’s worldwide turnover.
From today, the Commission has also ordered Apple not to apply anti-steering provisions on music streaming apps. “From now on, Apple will have to allow music streaming developers to communicate freely with their own users — be that within the app, by email or any other ways of communicating,” said Vestager.
From Thursday, Apple will also be barred from applying anti-steering provisions on any iOS apps under the bloc’s ex ante competition reform, the Digital Markets Act (DMA), as it has been designated a gatekeeper, and iOS and the App Store are regulated as core platform services, under that (separate) pan-EU law.
Penalties under the DMA can scale up to 10% of annual turnover (or higher for repeat offenders). The Commission is the sole enforcer of the DMA on gatekeepers.
Apple responds to music streaming fine
Apple has responded to the Commission’s antitrust decision today with an excoriating blog post in which it attacks the EU — claiming enforcers failed to uncover “any credible evidence of consumer harm, and ignores the realities of a market that is thriving, competitive, and growing fast”.
The blog post accuses Spotify of wanting to rewrite the rules of the App Store to suit its commercial interests. Apple argues the music streaming platform has spent the best part of a decade attempting to fashion competition complaints with “little grounding in reality”. Its blog post implies EU enforcers have been unduly influenced by complaints from a homegrown tech startup.
“What’s clear is that this decision is not grounded in existing competition law,” Apple writes. “It’s an effort by the Commission to enforce the DMA [Digital Markets Act] before the DMA becomes law. The reality is that European consumers have more choices than ever. Ironically, in the name of competition, today’s decision just cements the dominant position of a successful European company that is the digital music market’s runaway leader.”
Apple also confirms it will appeal the EU decision.
“Apple has been a part of Europe for over 40 years, and today, we support more than 2.5 million jobs across the continent. We’ve helped markets thrive, promoting competition and innovation at every turn — and the App Store is an important part of that story. So while we respect the European Commission, the facts simply don’t support this decision. And as a result, Apple will appeal,” it wrote.
While the Commission’s competition intervention on the App Store followed Spotify’s (private) complaint, which was accompanied by a very public lobbying campaign by the European music streaming giant decrying Apple’s 30% “tax” on developers, Vestager has — in more recent years — sought to frame the intervention as not a case about Spotify. In April 2021 she argued Apple’s actions have, more generally, deprived users of cheaper music streaming choices and distorted competition in this market as a consequence of it charging fees on music streaming rivals and applying anti-steering provisions that prevent them from informing users about cheaper offers. And that’s essentially the core of the Commission’s case outcome today.
Last month, with an EU enforcement decision on the case reported to be looming, Apple aggressively pushed back — seeking to train a spotlight on Spotify and the success of its iOS business. “Spotify pays Apple nothing for the services that have helped them build, update, and share their app with Apple users in 160 countries spanning the globe,” Apple wrote in a statement put out in late February. “Fundamentally, their complaint is about trying to get limitless access to all of Apple’s tools without paying anything for the value Apple provides.”
Apple also released a number of data points about Spotify’s app and use of iOS developer tools — saying the music streaming giant’s app has been downloaded, re-downloaded or updated more than 119 billion times across Apple devices. It also revealed Spotify has used thousands of its APIs across 60 frameworks; has submitted over 420 versions of its app to App Review which were approved; as well as using Apple’s beta testing platform TestFlight. Per Apple, its own engineers have also helped Spotify solve various challenges, such as those impacting hardware-accelerated media playback and battery optimization.
During today’s press conference, the EU’s competition chief was asked how Spotify has faced harm from Apple’s conduct, given its business has grown into a music streaming behemoth despite not being on iOS.
“Spotify made the choice not even to be in the App Store in order not to pay the fee of 30%. I think it’s anybody’s guess how big Spotify could have been,” she responded. “But for those who are on the App Store, smaller music streaming providers — like Deezer for instance, SoundCloud, there are others — for them of course this is of critical importance. Because obviously there is a price competition also here and now they can actually be in that competition because they can be found by the App Store and they can inform their potential customers about the pricing options available.”
She also said the reason the Commission has revised the case against Apple, dropping charges related to its in-app payment tech when it issued a second statement of objections, was on account of paying “very careful” attention to Apple’s arguments.
“One of the reasons why we have a second statement of objection is that we have listened very carefully to Apple’s response to the first statement of objection. And we have taken that into consideration. But that didn’t make all of our concerns go away,” said Vestager. “So obviously we do think that the case that we have now is a strong case. We also do think that people see that they were deprived of choice. Fair enough if you want to do the in-app payment and pay the fee but maybe the choice would be a good thing? And this is why this case is fundamentally about the anti-steering provisions that were non negotiable. It is not about the fee, as such, but the fact that you could not tell your customers that they could go somewhere else.”
“The case got nowhere in 10 years, changing the theory of harm three times and then at the end adding aggravating fines. Because on their narrowly defined market and value of sales the fine would be tiny, and ‘Apple is big and strong and can take it’,” argued Cristina Caffarra, an economics expert who advised Apple on the case. “They failed for years to craft a theory of harm that made any sense about the App Store. Was the issue the 30% commission? No, not that. No. The first theory of harm was about ‘exclusion’ — exclusion of whom? That was knocked out as it made truly no sense. No one was excluded. Who exactly was excluded? The next step last year was to bin exclusion completely, pivot to exploitation.
“Then there is another pivot to concluding the antisteering provisions don’t harm developers and that’s where the current decision lands — no harm to developers. There’s only harm to consumers because consumers don’t know how to find out where to subscribe on the Internet… Of all the issues one could come up with, this is vanishingly narrow, the remedies are narrow, the policy value zero and the fine performative.”
Digital Markets Act
Apple’s response to the incoming DMA also shows the company taking a defiant and even aggressive stance to face off against the bloc. Its initial strategy for DMA compliance, which it made public towards the end of January, essentially opts to unbundle the App Store fee structure, rather than reduce its cut (which is, presumably, what Spotify and other developers that complaint about Apple’s “tax” actually want).
Under the reworking of its T&Cs, iOS developers can either opt to stay on Apple’s existing terms (i.e. with the 15% or 30% App Store cut on applicable in-app purchases) or switch to new terms where there are more options available to them, such as being able to point users to off App Store offers and use third party payment processing tech that’s not provided by Apple. However Apple will levy a new “Core Technology” fee on these app (whether they’re distributed via its own App Store or alternative marketplace apps which are also being made available under the new terms) — of €0.50 for each first annual install per year over a 1 million threshold.
Additionally, apps that continue to be distributed via Apple’s App Store, and which qualify for a fee on digital purchases, will also have to pay Apple a cut of either 17% or 10%. While apps that want to use Apple’s own payment tech will pay an additional 3%. (Apps opting out of distribution on Apple’s App Store can expect alternative marketplaces to charge a commission of their own.)
All in all, then, the set-up Apple has devised for App Store as a regulated core platform service under the DMA looks unlikely to lead to a radical drop in its take on iOS developers.
This — frankly — is unexpected. The DMA does not engage in price regulation. Nor does the regulation ban gatekeepers from charging for their services — so long as fees fit under FRAND (fair, reasonable and non-discriminatory) terms. And by unbundling its fee structure in this way Apple looks to be preparing to defend its cut on Spotify et al as fair and reasonable — arguing it’s a reflection of the value iOS developers get from distributing their wares on its premium platform.
Whether developers may have a stronger complaint that Apple’s App Store fees are discriminatory under DMA, as they impact different types of apps in different ways, is one question. But — from an antitrust perspective — enforcers may be wary of getting embroiled in an issue that boils down to what’s a fair sharing of rents, rather than a classic competition case of exclusionary conduct.
Asked during today’s press conference whether its antitrust decision against Apple in the iOS music streaming market — which is also not about exclusionary conduct but rather centers consumer exploitation — marks a policy shift for the Commission, Vestager said the bloc’s antitrust enforcers have “an obligation to keep developing how we see our legal basis” to ensure relevance. “This is a rare type of case… We know for good there was a case in the ’70s about bananas. And of course there’s beauty in going from bananas to apples,” she added.
During the Q&A with journalists she was also asked for her views on Apple’s DMA compliance proposal. She declined detailed discussion but emphasized the Commission expects full compliance with the regulation’s list of ‘dos and don’ts’. She also gave a hint that its compliance assessment could factor in how Apple’s reworked fee structure for iOS developers and the App Store might shift incentives — citing “novel fee structures” as a tactic gatekeepers may use to try to undermine incentives for developers to do something else.
“Let me stress that we will carefully look into the details to assess the changes and to take into account of course also the market feedback,” she said. “For us it is a number one priority to look for compliance. Because this means that Apple will have to open its gates to its ecosystem to allow users to easily find the apps they want, pay for them in any way they want, and use them on any device that they want.”
“A lot of expectation is upon us for enforcement by the legislator, Council and Parliament because they obviously want to make sure that the businesses who are to benefit from an open digital market actually will do so,” she added, urging developers and affected third parties to support the Commission’s assessment of gatekeepers by providing feedback.
“What we of course hope to achieve with the DMA is that all the work that comes with finding a company dominant within the relevant market is now basically sort of taken care of with the gatekeeper provisions… We ought to be able, much faster, to assess whether a nonconform is ongoing so we hope of course to be able to speed up things.”
“Today’s decision shows that competition law continues to provide a very powerful basis to tackle illegal behaviour by companies like Apple to the benefit of consumers. And then we’ll work hand in hand with the DMA to ensure that digital markets work — that they indeed deliver for people,” Vestager also said, explaining the EU sees continued value in bringing classic antitrust cases on individual gatekeepers, where relevant, to respond to “creativity” to work around the DMA’s “very carefully crafted” and “precise as possible” rules.
Complaints against Apple’s DMA fees
The refrain from a hardcore of developers critical of Apple’s DMA proposal, meanwhile, is the iPhone maker is playing unfair and gaming the EU’s regulation by setting up overly complex and self-serving trade offs. In an open letter Friday a coalition of 34 app developers and associations, including Spotify and Epic Games — whose names are notably the most high profile of the listed app makers — wrote that the new fee structure in Apple’s proposal “seems designed to maintain and even amplify Apple’s exploitation of its dominance over app developers”.
“With a hefty transaction fee and a Core Technology Fee (CTF), few app developers will agree to these unjust terms. These fees will deter app developers from providing seamless in-app experiences for consumers, and will hamper fair competition with potential alternative payment provider,” they argued, going on to urge the European Commission — “in the absence of materially different proposals from Apple” — for “swift, timely and decisive action against Apple, to protect developers and benefit consumers and do so as soon as the DMA obligations apply”.
“This is the only way to guarantee the DMA remains both credible and delivers competitive digital markets,” the Spotify-led letter added, without specifying exactly what action from Apple the signatories believe is necessary for the regulation to actually deliver. (And, well, if even Apple’s fiercest developer critics can’t explain what its DMA compliance should look like is it any wonder Apple is sticking to its knitting on App Store fees?)
There has been one notable early climbdown from Apple vis-a-vis the DMA, though: On Friday it emerged the iOS maker had reversed a decision to block Progressive Web Apps (PWAs). Earlier, the company had argued requirements in the regulation which force it to allow non-WebKit-based browsers on iOS created security and privacy risks that meant it could no longer support these home screen apps. However its decision to block PWAs triggered a surge of complaints.
On Friday the European Commission told TechCrunch it had received more than 500 complaints from citizens, businesses and public entities, many of whom said they had been using PWAs to communicate with staff or users. The backlash, combined with — doubtless — pressure from EU enforcers ahead of DMA compliance day, appears to have pushed Apple into a U-Turn — meaning it will at least allow support for WebKit-based PWAs (something Vestager described today as “positive”).
Not that Apple couched this move as a U-Turn. In a statement last week the company said it had received “requests to continue to offer support for Home Screen web apps in iOS, therefore we will continue to offer the existing Home Screen web apps capability in the EU”. “Developers and users who may have been impacted by the removal of Home Screen web apps in the beta release of iOS in the EU can expect the return of the existing functionality for Home Screen web apps with the availability of iOS 17.4 in early March,” it added.
Galaxy-brained individuals might speculate the PWAs episode dovetails very neatly with Apple’s narrative: That the company is sensitive to, and prioritizes, genuine user needs and public interest so long as these can be served without compromising iOS’ core security and privacy. It also offers a conveniently contrasting example vs Spotify et al’s fee-focused complaints — whereby a handful of commercial app developers are, essentially, advocating to boost their own profitability by being allowed to pay Apple less.
In its own statement today, Spotify welcomed the Commission’s finding that Apple breached EU antitrust law by harming consumers, writing: “By requiring Apple to stop its illegal conduct in the EU, the EC is putting consumers first. It is a basic concept of free markets—customers should know what options they have, and customers, not Apple, should decide what to buy, and where, when and how.”
But the company also renewed its complaint that Apple “routinely” defies the law, saying it’s “looking forward to the next steps that will hopefully clearly and conclusively address Apple’s long-standing unfair practices”.
This story was updated during the day Monday as the news was developing
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2024-03-04 15:52:09Z
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