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European Regulators Hit Apple Over Spotify's App Store Complaints

European Union
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European Union

In what Daniel Ek calls a "big day" for fairness, the EU has accused Apple of anti-competitive behavior in relation to music streaming services in its App Store.

European Union regulators are accusing Apple of violating the bloc’s antitrust laws, alleging that the company distorts competition for music streaming through rules for its App Store.

The EU’s executive Commission said Friday it objected to how Apple applies rules in its App Store to music streaming services competing with its own Apple Music service, saying that it ends up costing consumers more and limiting their choices.

After a year-long investigation, the commission largely upheld complaints from rival streaming service Spotify, which said that Apple forced app developers to sell digital content to use its in-house payment system, which charges a 30% commission on all subscriptions. Spotify found that those fees end up being passed on to consumers.

The EU's investigation also found that Apple prevents developers from telling users about cheaper ways to pay for subscriptions that don’t involve going through an app.

The EU’s competition commissioner, Margrethe Vestager, said while Spotify had grown despite Apple’s rules, smaller music streaming players like Deezer and Soundcloud appeared to be hurt by them. "Our concern is that Apple distorts competition in the music streaming market to the benefit of Apple's own music streaming service,” Vestager told reporters in Brussels.

Apple rejected the charges, saying it was proud of its role in helping Spotify grow into a music streaming giant. The company also noted that Spotify doesn’t pay Apple a commission for most of its subscribers.

"Once again, they want all the benefits of the App Store but don’t think they should have to pay anything for that," Apple said in a statement. "The Commission’s argument on Spotify’s behalf is the opposite of fair competition."

Vestager noted that Apple Music isn’t subject to the same rules, which hurts rivals by raising their costs, reducing their profit margins and making them less attractive on the App Store.

The charges represent a significant blow to Apple, which is about to face an antitrust lawsuit in the U.S. brought by Epic Games, also over its App Store rules. If Apple is found guilty of breaking EU competition rules, it faces a fine of up to 10% of its annual revenues for breaches, which in Apple’s case could run into billions of euros, since the 27-nation bloc is a trading behemoth of 450 million people.

Apple has 12 weeks to respond to the EU’s objections. Under EU competition law, companies could offer to make changes to address its concerns. If Apple fails to persuade regulators that the App Store does not break competition law, the case will proceed through the European Courts.

Last November, in a bid to address regulators and developers' concerns, Apple announced that it was reducing App Store fees for small app developers with annual revenue of less than $1 million to 15%.

Spotify, which stopped offering paid subscriptions through its app in 2016 to avoid paying Apple's 30% commission, also accused the company of routinely blocking service upgrades, limiting communications with its Apple customers and “purposely” restricting choice for users by forbidding apps from directing customers to alternative, cheaper subscriptions available elsewhere.

Ensuring that Apple operates fairly is an "urgent task with far-reaching implications," Spotify’s head of global affairs and chief Legal Officer Horacio Gutierrez said in a statement.The European Commission’s move "is a critical step toward holding Apple accountable for its anticompetitive behavior, ensuring meaningful choice for all consumers and a level playing field for app developers," Gutierrez said.

Apple, in its statement, said that Spotify's demand that it should be able to advertise alternative deals on their iOS app is a "practice that no store in the world allows."

After the EU announced its provisional ruling, Spotify co-founder and CEO Daniel Ek also chimed in, on Twitter, calling it a "big day."

Deezer's chief content and strategy officer Alexander Holland called the EU's decision "an important step towards a fair competitive landscape where dominant market players like Apple have to compete with independent companies" such as his.

"Consumers benefit from fair competition through better and more diverse offers, features and content," Holland said.