Today, the Commission has sent a Statement of Objections to Apple. Our preliminary conclusion is that Apple abused its dominant position for the distribution of music streaming apps through its App Store and distorted competition in the music streaming market.
This case is about the central role of app stores in the digital economy. Apps have fundamentally changed the way we use our mobile devices. We can now do our shopping, play games, access news, music or movies directly through apps instead of visiting websites.
There has been an exponential growth of the number of apps but there are essentially two main app stores: Apple’s App Store and the Google Play Store. Both of them provide access to millions of apps developed by hundreds of thousands of developers. Apple’s App Store specifically hosts more than 1.8 million apps.
This market development benefits both businesses and consumers. But App stores also benefit from strong network effects. App stores with the most users are the most attractive for app developers. That in turn leads to more apps being made available for consumers on that app store. Due to these network effects, an app store can become a gatekeeper, in particular if there is only one app store available in a mobile ecosystem, as is the case for Apple’s App Store.
Apple devices are used by millions of Europeans. And users are very loyal. They don’t switch easily. For example, owners of an Apple device are not likely to switch to another device with Google Play Store just because music streaming is more expensive on the Apple App Store. So Google Play Store is not an effective alternative to reach the millions of Apple device owners that can only use the Apple App Store to buy their apps. To reach Apple users, music streaming providers have to go via the Apple App Store and accept the rules Apple imposes on them.
Our preliminary finding is that Apple exercises considerable market power in the distribution of music streaming apps to owners of Apple devices. On that market, Apple has a monopoly. The company not only controls the only access to apps on Apple devices. It also offers a music streaming service, Apple Music that competes with other apps available in the Apple App Store, such as Spotify or Deezer.
Our preliminary competition concerns relate to two conditions imposed to access the App Store.
First, there is the mandatory use of Apple’s own in-app purchase system to buy digital content. Here, Apple charges a 30 % commission fee for all purchases through its system.
This means that music streaming providers cannot sell subscriptions in their apps without paying a 30 % fee to Apple each month, on each subscription.
Our investigation showed that this fee was passed on to end users by raising prices, typically from 9.99 to 12.99 Euros.
Our second concern is about the so-called “anti-steering provisions”. They limit the ability of app developers to inform iPhone or iPad users of alternative, cheaper subscriptions available elsewhere.
In fact, to avoid paying the 30% commission, some music streaming providers decided to stop offering paid subscriptions in their apps. This is what Spotify decided to do in 2016. Since then customers can download the Spotify app in the Apple App Store, but they cannot purchase any subscriptions for Spotify’s Premium service in the app.
And Apple’s anti-steering rules limit the ability of music streaming providers to inform their users in different ways. Not only are they not allowed to mention their websites or any link to them in their own apps. They are also not allowed to send e-mails to users that created an account in the app in order to inform them about cheaper alternatives.
So Apple device users pay significantly higher prices for their music services. Or for services like Spotify, they cannot buy certain subscriptions directly in the app.
And Apple not only sets the rules for the App Store. It also competes with its own apps against many app providers.
Our concern is that Apple distorts competition in the music streaming market to the benefit of Apple’s own music streaming service, Apple Music. Apple Music is not subject to any of these rules and is offered at a price of typically 9.99 Euros. We are concerned that Apple’s rules negatively impact its rivals by raising their costs, reducing their profit margins as well as their attractiveness on the Apple platform.
Through these rules, Apple steps in between its competitors and their customers. With access to valuable data from the in-app payment system, Apple gets insights that music streaming providers don’t get. For example, they may no longer be in a position to understand the reasons for terminations of subscriptions and communicate with their customers about them.
To conclude, due to Apple’s rules on the app store, music streaming providers essentially have two choices. Either they pay a 30% fee on each subscription bought in the App Store and raise their prices without being able to inform users of cheaper offers. Or they lose access to Apple device users for paid subscriptions.
So, today’s Statement of Objections specifically follows up on concerns raised by music streaming providers who directly compete with Apple Music, including the complaint filed by Spotify.
Apple’s conditions affect all music streaming services competing with Apple Music, in particular the smaller ones, such as Deezer and Soundcloud.
And of course, App Store rules are a concern for many app developers beyond music streaming. Because they depend on Apple App Store as a gatekeeper to access users of Apple’s iPhones and iPads. This significant market power cannot go unchecked as the conditions of access to the Apple App Store are key for the success of app developers.
Competition intervention in digital markets must be sufficiently timely to have an impact. It is reassuring that music streaming services competing with Apple Music continue to operate still today. But we are also seeing clear signs that Apple’s conditions in its App Store affect their business development.
This Statement of Objections comes less than a year after opening the formal proceedings in this case. And despite Covid-restrictions that have kept my teams working in difficult circumstances.
Apple will now have the opportunity to respond to our concerns.
We remain determined to enforce competition law in order to keep markets open, undistorted, and based on fair competition.