Procedure by the EU Commission: Apple's business model with the app

The American electronics company Apple distorts competition in the market for music streaming services with its app store and puts other providers at a disadvantage.

The EU Commission comes to this preliminary judgment.

Werner Mussler

Business correspondent in Brussels.

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For this reason, the Brussels competition authority tightened the ongoing antitrust proceedings against Apple and forwarded the so-called "Statement of Objections" to the group on Friday.

This is the last step before the possible imposition of cartel fines and conditions.

The conditions can go as far as the prohibition of the previous business model.

The App Store is of paramount importance to Apple.

It is likely to be the group’s biggest sales driver in its increasingly important service division. 

The Commission started the procedure in June 2020.

It goes back to a complaint from the Swedish streaming service market leader Spotify.

With Apple Music, Apple itself offers a music streaming service and at the same time offers a platform for distributing Spotify with its app store.

Apple was a player and referee at the same time and dictated the conditions to the other manufacturers, Spotify had complained.

The group is thus abusing its dominant market position.

"Apple distorts competition"

The EU Commission now shares this interpretation. Competition Commissioner Margrethe Vestager said on Friday that the group dominated the market for the distribution of music streaming apps and was in this respect a “gatekeeper”. At the same time, Apple is a competitor with its own Apple Music service. “Apple enforces very strict rules for the providers in the App Store, which disadvantages them. As a result, those who buy cheaper streaming services have clear disadvantages. Apple distorts the competition, ”said Vestager. Spotify called Vestager's statement a "decisive step to hold Apple accountable for its anti-competitive behavior". Apple itself said: "The Commission's reasoning in favor of Spotify is the opposite of fair competition."

The Brussels authority complains, among other things, that the sales of subscriptions in the apps must be processed via Apple's payment platform.

The group retains 30 or 15 percent of the income.

The EU Commission could prohibit this in a final step or at least demand a change to this business model.

A large fine is also possible.

Since the start of the download platform in 2008, Apple has generally levied a 30 percent tax on income from digital items or services such as subscriptions.

For subscriptions that last longer than a year, the commission drops to 15 percent.

Recently, this lower rate also applies to developers making less than a million dollars a year.

Another violation of competition law

The commission concluded that most streaming providers passed the fee on to their customers with higher prices. Spotify, for example, offered its subscriptions in the iPhone app for 12.99 instead of 9.99 euros per month. A few years ago, however, the service switched to instead selling iPhone customers the subscription via a website in order to avoid the fee. The video streaming service Netflix is ​​also going this way.

With this model, the second competition violation comes into play from the point of view of the Commission: The providers are not allowed to include a link directly in the app to the website on which the subscriptions can be bought from Apple. Apple counters that, for example, it would not allow a competitor's electronics market to advertise alongside their own price tags. The iPhone company also points out that Spotify has won more than 100 million subscription customers since it withdrew from in-app purchases in 2016. In addition, Spotify does not pass the reduction in the fee from 30 to 15 percent on to customers.

It is no coincidence that Vestager uses the term “gatekeeper”. Apple is one of the market-dominating digital groups that the EU Commission intends to regulate differently than before as a "gatekeeper" beyond traditional antitrust proceedings. The proposal she submitted in December for a “Digital Markets Act” stipulates that certain behavior by the “gatekeepers” should be prohibited from the outset if they are classified as restrictive of competition. The proposal also targets Apple's restraint of competition in the App Store.

According to the proposed law, Apple would have to allow providers to advertise subscriptions and also in-app purchases outside the App Store. From the point of view of the EU authority, the new law would have the advantage that it would be able to intervene against competition violations much more quickly than in antitrust proceedings. These often last so long that the competition violation has given the market rulers irretrievable advantages. The EU Commission could in future prohibit the conduct that it has now objected to in the antitrust proceedings.