Reuters: FTC investigating Apple App Store subscription rules in light of Apple Music

Freedom?

Freedom?

The US antitrust regulators are reportedly looking into Apple’s subscription service rules for the App Store are anticompetitive and illegal under US law, according to Reuters. The main issue of contention is that the standard streaming music price of $9.99 per month is not attainable for Apple Music competitors as App Store rules enforce a 30% cut of all revenues made from within apps.

This means that streaming companies either have to take on significant profit cuts to stay at the $9.99 mark or charge more in the App Store to account for the 30% margin. The argument is that consumers will not want to pay $12.99 (approximately $9.99 with a 30% increase) per month for a streaming music service when they can readily buy Apple Music for $9.99.

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Spotify made this same complaint in May, where it characterized the 30% premium as an ‘Apple tax’ to keep competitors locked out. This ‘tax’ essentially gives Apple’s own first-party services an unfair advantage over the competition.

According to Reuters, the FTC is looking into the complaint but is yet to open a formal process. It warns that a formal investigation may not ever happen if it cannot find sufficient grounds for misconduct. Before Apple Music was launched, there was rumors that the Department of Justice was investigating anticompetitive behaviour in relation to Apple’s streaming music deals.

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Comments

  1. PhilBoogie - 8 years ago

    Very subtle use of the chosen artist Benjamin!

    • dcj001 - 8 years ago

      “The argument is that consumers will not want to pay $12.99 (approximately $9.99 with a 30% increase) per month for a streaming music service when they can readily buy Apple Music for $9.99.”

      It would not be 30% more than $9.99. It would be that $9.99 is 70% of what the amount would be.

      So you need to take $9.99 and divided by 70%, Which makes the amount $14.27 instead of $12.99. The difference is not great, but I am sure that the additional $0.27 would be appreciated.

      • 4nrmike - 8 years ago

        $14.27 – $12.99 = $1.28

      • dcj001 - 8 years ago

        Nice catch, 4nrmike.

        I made my post in bed on my iPhone, copying and pasting, using Siri to calculate the $14.27.

        But, in my haste to complete my post, I made an obvious error. $1.28 definitely makes a difference!

  2. mackie72 - 8 years ago

    Does Spotify pay apple 30% of their subscription fee? I can’t believe that spotify would agree on this. Kindle removed this but ok they are selling the ebooks more or less with a loss so there are no margins.

    • galley99 - 8 years ago

      Hulu and MLB.TV do not charge a premium for subscribing with the app. They likely get more subscribers that way, and there is less overhead on their end, so it may work to their advantage.

    • WaveMedia (@WaveMedia) - 8 years ago

      Kindle does it out of the app to avoid the fee because Amazon have their own systems to process all of this. Which is fine. It’s when you use APPLE’s system to process the payments etc that the 30% fee comes in. I also find it hilariously ironic and hypocritical of Amazon to do this given they take around 70% in fee’s for those very same books.

  3. monty72 - 8 years ago

    They don’t have to pay the 30% premium, just sign up for Spotify on the interweb and then sign in on the IOS app.

    • lkrupp215 - 8 years ago

      Which is exactly what Spotify is recommending it customers do. But this will wind up like the breakup of AT&T. Apple will be forced to provide all the service and maintenance while Spotify will use the Apple App store to compete against Apple and pay only a small fee determined by the FTC. AT&T was forced to lease its switch ports and cable pairs to competing phone companies at a wholesale rate determined by the the FCC, sort of like me leasing a cash register and counter space in McDonalds so I can sell their hamburgers with my brand name on them… and call it competition.

  4. Correct me if I’m wrong, but Google Music costs $9.99 per month too. Is that more attainable or less attainable?

  5. Jim Phong - 8 years ago

    The shameful Barack Hussein Obama administration now is against Apple too..
    It’s Spotify here that is raising its prices in order to not lose a single cent for paying Apple and so ripping customers off with an higher price!
    And these scums investigate Apple instead ?

    • David Garon - 8 years ago

      I agree with the second half of your assertion, but how is it that you forget the POS/GOP run Senate is as much a part of this as the administration?

      • Victor O - 8 years ago

        Any time anyone wants to emphasize that Obama’s middle name is Hussein, you already know where they’re coming from.

  6. leehardacre - 8 years ago

    Apple created the App Store – the App Store ultimately created the streaming of music – Spotify happened to be the best at it. How does this make Apple the subject of an investigation?

    The 70/30 split has been there since its creation and now Apple should be punished for it because they’ve launched their own service?! Jog on.

    • ... (@TheWhyOfFry16) - 8 years ago

      > now Apple should be punished for it because they’ve launched their own service?!

      When they have a Monopoly in allowing apps on the phones, special care does have to be taken to ensure that they don’t use that Monopoly to give their own apps a competitive advantage. Not saying that Spotify necessarily has a case since people can sign up for a subscription outside of the app but Apple keeping them from advertising that option within the app might be an issue?

    • Gareth (@garete) - 8 years ago

      For starters, the App Store did not create streaming music, it just made it accessible. Creation goes to the increasing bandwidth on mobile devices with 3g, 4g, wifi etc. Otherwise you’re saying the App Store made the creation of mobile gaming (which has been around long before the iPhone).

      Secondly, they’re being attacked for giving themselves a higher profit margin while being able to charge the same price.

      Or, for simple terms: let’s say you can make a box. Only I can sell your box to 50% of the market, and I charge you 30%. You do okay, until I see how well this box is doing and I decide to make your box but sell it at the same price. I earn more from the box and can promote it better than your box (more profits and control of the store). Your box sales drop.

      If you try to innovate or steal resources, I’ll drop prices 20%, still making more than you but charging less. I can even buy better boxes if need be and make them my own. Or I can pay suppliers to give me privileges. You cannot sell to this 50% any other way.

      Your choices are: to undercut your profits, which I can match while still making more than you; or not sell to 50% of the market.

      What do you do?

      The wrong choice leaves me in control of all boxes, which then I’ll abuse to hell. And no one will be left to stop me, because I have always had that 50% market control.

      That is antitrust.

  7. Jim Hassinger - 8 years ago

    Well, they can subscribe outside the Apple store at the same price, no?

  8. PMZanetti - 8 years ago

    So?

  9. PMZanetti - 8 years ago

    Spotify exists because Apple is gracious enough to create and sell a platform for it. /end

  10. David Garon - 8 years ago

    So I’m guessing that because the FTC is investigating Apple, with no mention of Android, that Android makes nothing on their Apps. Wow, what a great bunch of posers!

  11. wvb22 - 8 years ago

    No. Apple exists because developers are gracious enough to create and sell great apps for it. /end

    • Gracious enough? What they create and sell great apps out of the goodness of their hearts and don’t make (or attempt to make) any money for their efforts? Real good thinking their pal.

      • wvb22 - 8 years ago

        Apparently I had to add the /sarcasm in front of it. Some people can’t read between the lines. It was a reaction to PMZanetti’s comment who said Apple was gracious enough to build a platform for Spotify which is evenly stupid of course. Apple is in the market to sell devices too. My comment was sarcastic but there is truth in it as well. Apple can’t exist without good apps and developers can’t live without a good platform. Too bad I have to spell it out for some people.

  12. strawbis - 8 years ago

    Anyone remember Microsoft barely escaping being broken up for monopolisation over Internet Explorer?

    Apple are on the same road by bundling their Music Streaming service with their products. It’s anticompetitive and that, if anything, would be the best way to “have at” Apple. I personally don’t stream music, I don’t want it in my face every day, and think it should be made a separate downloadable app.

  13. scumbolt2014 - 8 years ago

    I think Apple Music sucks, but I disagree with the FTC investigation. It’s Apple’s app store and they can set their terms anyway they please in my opinion. Why doesn’t the FTC investigate all the cable, internet, utility and power companies that say you’re going to be billed a certain monthly fee then have service charges to make the consumer pay for them to run their business also.

  14. jimgramze - 8 years ago

    It seems to me what would be illegal would be if all the streaming companies colluded to keep the price at a certain point. That way if you want the product you have to pay what all the other companies agreed on. That’s illegal. Selling for less while still making a profit is perfectly legal. Selling below cost (losing money intentionally) in order to put competitors out of business lands in the grey area toward being illegal.

  15. Lee Mahi - 8 years ago

    The Verge would never cover this. I have the verge with a passion.

  16. John C-Hack - 8 years ago

    Its a very simple case of anti-competitive practice. Apple sells its own music streaming service, but adds a fee to competitive services to stifle competition.

    Que the Apple apologists…

  17. Hasan (@The2ndCityKid) - 8 years ago

    Why is there even an argument here? Look if it’s more expensive in the Apple App Store don’t buy it from there. If I go to let’s say a Best Buy and a movie is $25 and the same movie is $19 at Target nothing is preventing me from picking it up from Target. I use Spotify and I signed up via their website.

Author

Avatar for Benjamin Mayo Benjamin Mayo

Benjamin develops iOS apps professionally and covers Apple news and rumors for 9to5Mac. Listen to Benjamin, every week, on the Happy Hour podcast. Check out his personal blog. Message Benjamin over email or Twitter.