Welcome to Plugged In, a newsletter that features the unfiltered thoughts of the CEOs, decision makers and power players at the intersection of technology and music. I’m Micah Singleton, Billboard’s director of technology coverage. I lead Billboard’s reporting on the streaming music ecosystem and the startups that bridge the gap between two of America’s most important exports.
It’s long been a point of contention for popular app makers like Spotify, Netflix and Fortnite-creator Epic Games that Apple charges a 30% fee for in-app purchases and subscriptions made in apps distributed by Apple’s App Store. For years, detractors have pulled subscriptions from their apps and called for changes to the “App Store Tax” rule for years — Spotify stopped allowing users to sign up through its iOS app in 2018, for example — while Apple sees it as an operating expense.
The conversation came to a head in 2020 when Epic Games created an alternative payment system for Fortnite in its iOS app — a move that goes against Apple’s terms of service — which Apple responded to by terminating Epic Games’ App Store account. Epic Games sued, and in September Judge Yvonne Gonzalez Rogers of the District Court for the Northern District of California issued a permanent injunction forcing Apple to allow developers to direct users to alternative payment methods within their apps. (Apple was denied a stay but says it will appeal for one to the Ninth Circuit. The injunction is scheduled to go into effect Dec. 9.)
As we wait to see how this develops, the question is what kind of impact could this shift have on music companies that can now save 30% of their revenue from in-app purchases?
“I do understand Apple wants to maintain a good user experience,” one CEO says, “but it becomes cost-prohibitive. Apple wanting to create good experiences causes others to create bad experiences.” For example, the CEO calls the experience in Amazon’s audiobook service Audible “horrible” for users wanting to make a purchase. “Thirty percent is a big amount of money, it feels like you’re getting robbed,” the CEO continued. “We wouldn’t run our main offering through an app because it would kill us. It’s preventing making a better experience for the users.” If Apple is forced to allow other payment methods in the App Store, the CEO says, “It will make things better for the users and create more innovation, it will change which business have apps.”
One senior executive says Apple has the right to charge whatever it wants for use of the App Store, which the company funds and built. “If you build the mall and everyone comes to the mall, of course the rent goes up because of the traffic,” the executive says.
“I don’t think it would have a very significant, positive or negative,” another CEO says of the proposed changes.
“There are some really big policy ramifications on security and privacy that could be ripple effects,” one chairperson says. “One of the big selling points to the music industry by Steve Jobs was Apple being secure and vertically integrated, with no piracy issues,” the chairperson continues, pointing out “That was crucial to the download and streaming economy.”
One founder and CEO says, “the friction is overrated,” while noting that Spotify — which has long been a proponent of Apple removing its App Store tax — won’t benefit from the change as much as it has led people to believe. “I don’t buy that Spotify being in the App Store will drive conversion at all,” the founder says. Spotify has not allowed new sign-ups through the App Store since 2018 because of the 30% fee.
“They have to be terrified of the new Justice Department and the EU,” another CEO says of Apple, who must now deal with new Federal Trade Commission chairperson Lina Khan, a longtime proponent of breaking up the big tech companies and European Commissioner for Competition Margrethe Vestager, who has been focused on making sure tech companies aren’t anticompetitive. “If I was them and I was smart, I’d just get ahead of this,” the CEO says, noting Apple should cut its App Store fee. “I think it would make them a more innovative company.”