Randy Picker Writes About the European Commission’s Apple Fine

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

On March 4, the European Commission fined Apple 1.84 billion euros, finding that Apple had abused its dominant position through its control over the App Store in imposing anti-steering provisions on providers of music streaming apps. The Commission’s statement didn’t namecheck Spotify, but the Commission launched its investigation in June 2020 after Spotify had filed a complaint in March 2019. The fine sounds like a huge win for Spotify that it should be gleefully celebrating. Yet, Spotify remains unhappy. What is going on exactly?

We need to backtrack a little. Apple makes money off of the iPhone by selling us phones and also through the royalty rates that it charges developers in connection with the App Store. Devices and services work together. To simplify, developers with apps that don’t charge users a cash price pay no royalties to Apple and most people start using Spotify on its free, ad-supported tier. When a user downloads that version of the Spotify app from the App Store, Apple collects nothing from Spotify, even though Apple has provided a bunch of different services to Spotify in connection with that download. Those include the costs of running the App Store, the use of the patented inventions embedded in the iPhone and the App Store, and the other costs of distributing apps.

Spotify wants users of its free app to convert to premium, cash-paying customers and it would like to do that from inside the Spotify app. Now we get to the conflict: Apple takes a 30% commission on those sales and Spotify doesn’t want to pay that. Apple could charge Spotify a fee every time the Spotify app is downloaded—more on that possibility later—but it hasn’t done that in the past. Instead it has charged Spotify a royalty only at the point where Spotify started collecting cash from its customers and only when that transaction was completed inside the app. To increase the chance that Apple actually collects that royalty, Apple took another step: it limited the ways in which Spotify could inform users about possible lower prices outside the app. Again, Apple historically hasn’t collected fees on transactions outside of the app, but it clearly wants to drive transactions through the app where it can easily collect royalties. This is the anti-steering rule that the European Commission found to be abusive.

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