The European Commission Fines Apple 1.84 Billion Euros and Spotify Still Isn’t Happy

By: Randy Picker (Pro Market)

On March 4, the European Commission imposed a fine of 1.84 billion euros on Apple for exploiting its dominant position by enforcing anti-steering provisions on providers of music streaming apps through the App Store. Although the Commission did not directly name Spotify, its investigation, initiated in response to Spotify’s complaint in March 2019 and launched in June 2020, led to this substantial penalty. While this fine might seem like a victory for Spotify, the reality is quite different.

To understand the situation, it’s essential to consider Apple’s revenue streams from iPhones and the App Store. Apple profits not only from selling iPhones but also from the royalties it charges developers. The relationship between devices and services is integral here. Developers offering free apps pay no royalties to Apple, and many users initially opt for Spotify’s free, ad-supported tier. When users download this version of the Spotify app from the App Store, Apple doesn’t receive any revenue, despite providing various services related to the download, such as App Store maintenance and patent licensing.

Spotify’s goal is to convert free users into paying subscribers, preferably through in-app purchases. However, Apple imposes a 30% commission on such transactions, which Spotify refuses to pay. While Apple could charge Spotify for each app download, it has historically only charged royalties when users transition to paid services within the app. To ensure collection of these royalties, Apple restricts how Spotify can inform users about alternative subscription methods outside the app, leading to what the European Commission deemed as an anti-steering rule.

Specifically, the Commission identified Apple’s practices as “unfair trading conditions,” potentially resulting in higher prices for music streaming subscriptions for iOS users over the past decade. However, it’s debatable whether Spotify passed on these charges to its customers. Looking beyond the question of market dominance, with Apple holding around 33% of the smartphone operating system market in Europe and Spotify claiming 56% of the music streaming market, the financial dynamics come into focus. Despite benefiting significantly from the iOS platform, Spotify resists paying Apple any fees. Consequently, Spotify does not allow its customers to subscribe to its premium service through the app, a practice it gradually phased out for both new and existing customers. The exact amount Spotify has paid Apple remains unclear, but Apple asserts that Spotify currently pays nothing, a claim that appears accurate…

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