Spotify is taking off its gloves in what has up to now been a behind-the-scenes tug-of-war with Apple, where it competes against Apple Music but also relies heavily on the company for distribution of its app on iOS devices. Today CEO Daniel Ek announced that his company has filed with the European Commission a complaint against the iPhone giant over how Apple has “introduced rules to the App Store that purposely limit choice and stifle innovation at the expense of the user experience—essentially acting as both a player and referee to deliberately disadvantage other app developers.”
While the EC complaint is confidential, so will not be shared publicly, Spotify has created a public site, appropriately called Time to Play Fair, which details all of the ways in which Apple has “tilted the playing field,” in the words of Spotify general counsel Horacio Gutierrez in remarks, “in a set of ever increasing restrictions.” The company has not specified damages, but believes that “we could have been even more successful” had it not been restricted. Notably, on Google Play, Spotify is not required to use Google’s payment system and is allowed to offer a choice to users. “The situation is completely different.”
Ek said the complaint and request for regulatory interference to ensure fair competition comes “after trying unsuccessfully to resolve the issues directly with Apple.” One crucial issue: Apple’s high fees for accepting payments in apps, a 30 percent tariff, which he refers to as the “Apple tax.”
The base of Spotify’s claim is that the company wants to be treated like “numerous other apps on the App Store, like Uber or Deliveroo, who aren’t subject to the Apple tax and therefore don’t have the same restrictions.”
Gutierrez declined to say if Spotify had talked with other companies to join the suit. “We know others feel equally frustrated with [Apple’s] restrictions… but we will not speak for them,” he told TechCrunch in response to the question. He added that the EC will likely seek input from others as part of its investigation, which could be one way that other companies become part of this complaint.
In his blog post announcing the suit, Ek detailed three requests to the Commission: that people not be forced — “locked in” — to Apple’s payment platform and tariffs that it dictates; that apps compete on merits and just who owns the app store, specifically Apple Music should be subject to the same rules as Spotify; and finally that app stores should not be able to control communications between users and app publishers, “including placing unfair restrictions on marketing and promotions that benefit consumers.”
This is a huge move for Spotify to make. A lot of developers have made noise about Apple’s policies, but generally it holds a lot of power and so many are careful to limit how much they complain. Spotify is the biggest company so far to speak out, and, more to the point, formally file a regulatory complaint over how Apple treats developers.
The move underscores how the two companies have long been frenemies — Spotify relies on Apple for distribution of its app, but at the same time the two are in hot competition in the music streaming market, an area that is only going to become more fraught with tension as Apple continues its strategy of building up its services and content businesses to offset slowing growth in hardware sales. The company is expected to announce a new slate of entertainment services in an event on March 25, although Gutierrez said that timing was “just coincidental.”
The complaint extends to a range of business initiatives, not just payments. “We’re pretty much on every speaker or wearable out there except for Apple’s,” Gutierrez noted in the press conference today.
But Spotify is not the only one that’s been looking for alternatives while at the same time continuing to play in Apple’s walled garden. Netflix, similar to Spotify, has been bypassing Apple’s subscription model, which requires the app developer to pay Apple a fee for charging users to use the service by asking users to pay outside of the app. This works to some extent, but making it harder to pay will also put some buyers off.
For now, Spotify’s billing gripes will mostly concern subscriptions, which fall under a 30/70 revenue split (Spotify getting 70 percent) for the first year, with that figure changing to 85 percent in subsequent years. But presumably it’s also laying the groundwork for how that will become an even bigger problem down the line for in-app purchases of one-off items, such as podcasts.
Last month, the company made waves when it announced it would acquire a pair of startups, Gimlet and Anchor, for about $400 million to further its ambitions in spoken word content, and to diversify its business into more than music (and specifically costly licensing deals with record labels).
The company has continued to see business grow for its existing products. In Q4 it noted that monthly active users were up 20 percent to 207 million, but it also missed analyst expectations on revenues of $1.7 billion.
Although its own video ambitions have not expanded too much (yet) beyond a small selection of music-related content, it has also teamed up with Hulu to expand its offerings with bundles. That could, at some point, also see Spotify looking to offer more à la carte content alongside subscriptions.
We are now listening to the conference call from Spotify and will update this post as we learn more.