Apple has a Spotify problem—and it just cost the iPhone maker a $2 billion fine from the European Commission.
For years, the two companies have been at war as the streaming service lured users away from Apple’s iTunes and accused the tech giant of exploiting its dominance to stifle innovation. In their long-running conflict, each has made incursions into the other’s territory. When Apple launched its own streaming service Apple Music in 2015, Spotify claimed Apple was able to undercut the platform’s prices because it didn’t have to pay the same App Store fees as rivals. In 2019, Spotify began an ambitious podcast spending spree, splashing out on high profile shows, in another direct challenge to Apple.
The feud’s early days were civil with few barbs traded in public. “We worry about the humanity being drained out of music,” said Apple CEO Tim Cook in 2018, a cryptic comment widely interpreted as a jibe at Spotify’s heavy use of algorithmic recommendations. But Spotify became more outspoken as EU politicians started to call for laws to reign in Big Tech. The €1.8 billion ($1.9 billion) fine on Apple announced by the European Commission today shows that its tactics are working.
The fine originates in a legal complaint filed with the European Commission by Spotify in 2019, challenging the restrictions and fees Apple places on developers listing their apps in the Apple App Store. Today the European Commission agreed, saying that Apple’s app store restrictions amount to unfair trading conditions that may have led iOS users to pay significantly higher prices for music streaming subscriptions.
“For a decade, Apple abused its dominant position in the market for the distribution of music streaming apps through the App Store,” said Margrethe Vestager, the EU’s competition chief, in a statement. “They did so by restricting developers from informing consumers about alternative, cheaper music services available outside of the Apple ecosystem.”
Apple’s app store rules restrict music streaming companies and other apps from informing their users on Apple devices about how to upgrade or sign up for subscription offers outside of the app. Instead app users can only see sign up options for in-app subscriptions via Apple’s payments system, where prices are likely to be higher because Apple takes a cut. Some app makers, including Spotify, that do not offer in-app purchases because they don’t want to pay this commission. “Some consumers may have paid more because they were unaware they could pay less if they subscribed outside the app,” Vestager said. “This is illegal under EU antitrust rules.” Apple, which says the EU has failed to provide credible evidence of consumer harm, has already pledged to appeal.
Big Number
The fine is far bigger than expected, prompting Apple’s stock to drop 3 percent on Monday. Media reports based on unnamed sources had predicted a penalty of around €500 million. It’s also one of the biggest fines the EU has ever issued against a tech company, ranking below only two Google fines of $5.1 billion and $2.4 billion. Vestager explained in a press conference that the scale of the fine is intended to prevent the company from breaking rules in future. She added that the amount includes a “lump sum” to “achieve deterrence.” $1.9 billion amounts to 0.5 percent of Apple’s global turnover, she said.
Although Spotify CEO Daniel Ek has expressed disapproval of Apple’s business tactics, he’s also something of a reluctant figurehead in Europe’s fight against Apple. The self-described introvert has adopted the role of spokesperson for disgruntled European app developers, who finally feel their complaints about big tech are finally being heard.
On Monday, Ek posted a video on X in which he described Apple as a threat to the open internet. “Apple has decided that they want to close down the internet and make it theirs and they view every single person using an iPhone to be their user, and that they should be able to dictate what that user experience should be,” he said. Ek also claimed Apple also wants to effectively levy a tax on Spotify while exempting its own music service, Apple Music.