Apple Music model scrutinized by Consumer Watchdog group over antitrust concerns

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Apple is once again coming under fire for business practices and deals around Apple Music, the subscription music and video streaming service it launched last month. Consumer Watchdog, a prominent consumer advocacy group, issued a letter to the United States Federal Trade Commission and Department of Justice today, asking the government to put restrictions on Apple’s “plans to dominate the subscription music sector” while citing “serious antitrust concerns” based on information it received.

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While the group notes that it typically praises Apple on issues concerning consumer privacy and the like, it wrote today that Apple leveraging its market power to push Apple Music is “very disconcerting” and compared it to the infamous e-books case when Apple launched iBooks.

The letter explains that Apple’s prior access to over 800 million credit cards connected to the free trial for Apple Music raises concerns for fair competition. It goes on to address Apple’s access to music preference data from hundreds of millions of customers from running the iTunes Store, adding that Apple could cut deals with artists directly if music labels didn’t agree with their terms for streaming music.

At issue, in fact, is the proprietary information that Apple possesses about its subscribers’ credit cards and musical preferences, which it is leveraging over music labels in an attempt to rub out free (commercial sponsored) music platforms. In this regard, Apple is utilizing its market power in much the way the company did in setting e-book prices.

The letter also echoes previous concerns from others over Apple’s App Store policy of taking a cut of subscription revenue from third-party apps including Spotify while it doesn’t face the same fee obviously for its own service.

Consumer Watchdog’s complaint is only the latest to surface since news developed that Apple was even planning to introduce a new music streaming after buying Beats Music last year.

Both the European Commission and the Department of Justice are already said to be conducting an antitrust investigation over Apple Music with competitor Spotify said to be behind some of the complaints. Universal Music Group wrote a letter in June claiming that it had no illegal deals with Apple that would restrict other services from thriving.

Similarly, it was reported earlier this month that the United States Federal Trade Commission is currently investigating Apple’s App Store subscription rules following Apple Music’s launch. You can read Consumer Watchdog’s complete letter to the FTC and DOJ here.

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Comments

  1. Ryan Rotellini - 8 years ago

    Jealous babies. This is ridiculous. iTunes has more info. Spotify started first. Bot have advantages. Focus on making the best music expedience and the best will when. This is actually the reason I canceled Spotify. Big babies.

    • toukale - 8 years ago

      I agree, but spotify is fighting for their lives here so everything is on the table. If Apple Music is even as successful on ios as Apple Maps then spotify is screwed.

      • Rich Davis (@RichDavis9) - 8 years ago

        Spotify still runs their company at a loss. Apple doesn’t rely on Apple Music subscribers to make a profit. It’s more of just offering customers a subscription service for those that want their subscription service that’s built within the iTunes app on OS X or an installed app on their iOS device, but you aren’t forced or required to use it. If you don’t want to use iTunes, you don’t have to, you can install a variety of third party music player apps, some free, some not. If you don’t want to run Apple Music, you don’t have to, you can install Spotify, Tidal and others for other streaming services. Just because Apple has user information from the iCloud users or iTunes doesn’t mean people are going to automatically use Apple Music.

        Apple is just responding to the ever changing market by offering a streaming service. The market will ultimately dictate which service they are going to use and its up to each company to figure out how to create a profitable business model.

  2. Seems like this special interest group is actually a shill for the music publishers and other corporate interests and in fact their message and their motives, on their face, are very anti-consumer, similar to what happened with iBooks.

    Apple cutting out the labels and going to artists directly? Seems like it could be good for artists AND consumers. Apple charging other companies for access to its payment and subscription processing? That’s decidedly nothing to do with consumers and it’s just fair business – VISA doesn’t process transactions for free either. Banks don’t do anything for free. Why should Apple?

    • Ryan Rotellini - 8 years ago

      Exactly! That’s like getting mad at Walmart for making a profit on the goods it chooses to carry in its stores….

    • On top of this, I really hate the word “non-profit” – while the corporate entity doesn’t seek to show a profit on its balance sheet, the employees, executives and directors of these “non-profits” are handsomely rewarded, not the least of which directly from their salaries.

    • Rich Davis (@RichDavis9) - 8 years ago

      A good record label will get a good producer to work with the artist and they will be more careful as to what they put on the market. I only see a lot of lower quality crap coming out if you remove the record label. Yes, there are good and bad record labels, producers, etc., but I think it’s going to detrimental in the long run cutting out the record label, especially the good ones that know how to put out well produced content.

      • Henry Johansen - 8 years ago

        I see your point, but have you considered the idea that Apple would simply start a record label then? They’re already doing (albeit not the best) music videos in house – and they did just buy Jimmy Iovine, Dr. Dre, etc. – so they should have the expertise in house to pull that off as well.

  3. Ryan Rotellini - 8 years ago

    Jealous babies. This is ridiculous. iTunes has more info. Spotify started first. Both have advantages. Focus on making the best music experience and the best will when. This is actually the reason I canceled Spotify. Big babies. That’s like a football team crying because the other team has a bigger stadium.

  4. If companies don’t want to pay apple a % to sell product through the app store, then they should just make a webapp. A great example is the Financial Times, who cancelled their app a long time ago and Amazon’s app, which doesn’t allow kindle purchases in-app only via the website.

    • WaveMedia (@WaveMedia) - 8 years ago

      The 30% fee wasn’t even the reason the Financial Times got rid of their app. That’s the BS they say publicly but the real reason was they got no customer demographics by letting Apple process them. They wanted that data for their marketing teams and bean counters. The 30% thing was and still remains a moot point in the grand scheme and is just smoke and mirrors for the real resason, one that more people would object to than crying about them “taking a cut!”.

  5. rogifan - 8 years ago

    I guess all that Spotify lobbying in Washington DC is paying off.

  6. mikegwest - 8 years ago

    The difference here is that Apple is also in in these businesses directly. Apple says that if you want an app on an iPhone, you have to pay exorbitant fees to them, while their services don’t have to pay the fees. So you say, just make a web app. Problem is that a web app wouldn’t have to same quality user experience. So essentially, thy’re using their control over the OS to make it more difficult to compete with their services without sharing large percentages of their revenue. VERY similar to Internet Explorer/Microsoft back in the day. Oh, the irony…

    • Chance - 8 years ago

      I would say the difference though is that Apple has about 20% or so of the market, hardly a monopoly like Microsoft back in the day.

    • Td mac (@tdsmac) - 8 years ago

      Plenty of companies have this same arrangement. Just look at a supermarket. Brand names pay large sums of $$ for shelf space. Store brands don’t pay this “fee”. The fee is the cost to run the store itself, the marketing the store does to get customers to come to the store, the employees and the way the store functions, etc.

      This is nothing like IE back in the day. There was a monopoly on the desktop market and that was Windows. Apple has like a 20% share of smartphones. People can get spotify on other platforms if they want. Why does Spotify have to pay exorbitant fee’s to Apple? They could just have a free app and still have all the same functionality as the premium version as long as the subscriber is a premium customer. They can market the service all on their own. What Spotify is paying for is the ease of allowing customers to subscribe to their service using API’s and functionality Apple created to allow these stores a way to draw more paying customers for a fee. It allows customers an easier way to upset their customers. Also allows Apple to take on the payment processing, ordering transactions, etc.

  7. Rich Davis (@RichDavis9) - 8 years ago

    This is ridiculous. Spotify has several different business models. One paid subscription, a free service. People aren’t FORCED into anything, they have the option of signing up for whatever service they want whether it’s free or not.

    • mikegwest - 8 years ago

      Yes, but sharing their revenue with Apple on iOS devices puts them at a competitive disadvantage. They could choose to do a web app, but then they couldn’t deliver a service on par, quality-wise, with Apple’s own service. Apple is leveraging their control over the platform to make it more difficult and less profitable to compete with their own services. These are textbook anti-competitive practices. Having a monopoly isn’t illegal. It’s how you use it that gets you into trouble.

      • Td mac (@tdsmac) - 8 years ago

        But there is no monopoly. Apple has a 20% share of the smartphone market. Other vendors of smartphones have their own App stores and rules. Just cause there is one “Apple Appstore” you can’t call that a monopoly. If that was the case each and every business would be considered a monopoly in and of itself. i.e. Walmart is a monopoly is what it sells or allows to be sold in its stores. What is text book is that a business sets its own terms of its store.

        Btw, other companies that have competing services have successfully competed against Apple. i.e Dropbox, Microsoft One Drive, Amazon Prime, Netflix, etc. All of them have free apps and have access to premium content. They all just chose to not use in-app purchases. All sell outside of the App Store.

  8. RP - 8 years ago

    I hope no one here or Apple is surprised.

  9. iSRS - 8 years ago

    Glad I’m not the only one that thinks this is a joke. Guess what? When I had Spotify I would pay with the gift cards sold at Target, which I often got a % off. I paid the $9.99 rate. In fact, everyone I know that had Spotify did so the same way. If this is the case, Spotify needs to produce some numbers. How many total paid subscribers? How many of those do so through the Apple App Store? I bet it is a statistical blip. Just companies that hooked on to the Apple/iPhone sail and now that Apple is entering their service, they are scared.

    I include the Government in this. Ever since Apple wanted to repatriate money with a tax holiday, they’ve been getting penalized for following the law and being successful.

  10. Jonny - 8 years ago

    Isn’t the credit card I have on file with Apple just as easily used for any app purchase or subscription? Having the credit cards on file is a perk for all developers.

  11. Leon Aves - 8 years ago

    Sick of this stuff about “Apple’s App Store policy of taking a cut of subscription revenue from third-party apps including Spotify while it doesn’t face the same fee obviously for its own service.” Guess what, it does have to pay the same fee when it’s selling subscriptions through someone else’s platform (i.e. the Play Store). Guess how it deals with it? Take a look at the contract with the labels: http://www.digitalmusicnews.com/permalink/2015/06/09/breaking-apple-is-paying-just-58-of-streaming-royalties-back-to-indie-artists — “for a Subscription that is billed and paid via a third party (e.g., Carriers and Google Play), […] the applicable minimum wholesale price will be reduced by the percentage the applicable third party charges ITUNES”. So hey why don’t Spotify negotiate a deal like this into their contracts with the labels? They’d rather just whinge and blame Apple.

  12. lkrupp215 - 8 years ago

    So basically Senator Franken and his minion want Apple to haul Spotify’s freight for free. Does that baout cover it?

  13. joannbendzsas - 8 years ago

    It costs Apple money for servers, to verify Spotify updates, ect. I like Spotify as a company but why are being stupid and want a free ride. PayPal takes part of the fees I make on EBay. Am I seeing them?

  14. Toro Volt (@torovolt) - 8 years ago

    I dream of a future where Apple owns knows and control every aspect of my life.
    [sarcasm]

  15. b9bot - 8 years ago

    Spotify and others are whining like babies so because they are to stupid to compete they are going to cry to the government. The DOJ in itself is against Apple just because Apple is in business. Apple has its own products and if Apple has a product that can bring in 30% profit why would Apple not use this? You think any of those other businesses would not do the same? If Spotify can’t compete to f”ing bad then they don’t deserve to be in business. They don’t deserve hand outs if they can’t compete just like any other business.
    Apple should not be penalized because Spotify can’t do business and make a profit that’s not Apple’s problem.

  16. Henry Johansen - 8 years ago

    I never really read up on the whole iBooks case, but I thought it was about price-fixing, as in setting higher prices to make more money and forbidding the labels to let competitors set lower prices. If that is true, then offering a service now that is cheaper than everything else is exactly the opposite?
    I hope they shake this one of like so many other suits, but I fear the day that some judge feels the urge to actually interfere and do something like what they did to Microsoft with Internet Explorer – forcing them to make a choice that was already there more visible and not including a browser as standard for their OS to allow competitors to compete with their FREE service.
    Spotify is doing the right thing by letting their users know that Apple is taking 30% and that they can have that money to themselves at an Apple Music matching price by paying to them directly instead of in the app. Then people can choose what they want: Apple Music through Apple at 10$, Spotify through Spotify at 10$ or Spotify through Apple at 13$, which is a monthly 3$ convenience fee.

  17. blakereichle - 8 years ago

    I find it very interesting why Spotify are so concerned specifically on Apple Music when it is just an iOS service, obviously.

    I’ve just read a recent article from 9to5Mac’s Stephen Hall and he claims iPhone only accounted for 14.1% of all smart phones sold last quarter. So clearly Spotify still have HUGE market opportunities with Android customers. In addition to this Google Music is also a $9.99p/m subsciption just like Apple Music… Granted I’m not too sure if Google take a 30% cut of App Store revenue, I’m just curious why this has only become an issue now that Apple Music is on the scene.

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Avatar for Zac Hall Zac Hall

Zac covers Apple news for 9to5Mac and hosts the 9to5Mac Happy Hour and 9to5Mac Watch Time podcasts.