EU leaders hit Apple with a fine of $1.95B

Punishment is for using App Store to thwart streaming competition

Apple on Monday was fined $1.95 billion by European Union regulators for thwarting competition among music streaming rivals, a severe punishment levied against the tech giant in a long-simmering battle over the powerful role it plays as gatekeeper of the App Store.

The penalty, announced by the EU antitrust regulator, is the culmination of a five-year investigation set in motion by one of its biggest rivals, Spotify. Regulators said Apple illegally used its App Store dominance to box out rivals.

“For a decade, Apple abused its dominant position in the market for the distribution of music streaming apps through the App Store,” said Margrethe Vestager, the European Commission executive vice president who oversees competition policy.

“From now on,” she said in a news conference, “Apple will have to allow music streaming developers to communicate freely with their own users.” The size of the fine, she added, “reflects both Apple's financial power and the harm that Apple's conduct inflicted on millions of European users.”

The action by the European Commission, the EU executive branch, is the latest in a series of regulations and penalties to target the App Store. Most of the disputes are because Apple requires that apps use its in-app payment service for sales. It takes as much as a 30% commission on each transaction, a fee that many developers say is excessive.

Regulators in the Netherlands and South Korea have passed laws or orders to force Apple to allow alternative payment services, but Apple has largely disregarded the regulators' challenges. In those countries it is allowing alternatives but charging a 27% commission, a solution that regulators in the countries are contesting.

Apple said it would appeal the ruling. “While we respect the European Commission, the facts simply don't support this decision,” Apple said in a statement Monday.

In a briefing last month, Apple said European regulators had been searching for a legal theory for the case for nearly a decade, in fits and starts. Apple challenged the idea that Spotify users haven't been able to subscribe to music services through other means, saying that Spotify has added more than 100 million subscribers outside its app over the past eight years.

Apple also accused Spotify of being a monopolist because it has more than a 50% share of Europe's music streaming business. It said Spotify has benefited from the software tools that Apple provides, as well as more than 119 billion downloads and updates of its app. It's done so while not paying Apple any money in commissions.

“Fundamentally, their complaint is about trying to get limitless access to all of Apple's tools without paying anything for the value Apple provides,” a spokesperson said in a statement.

Spotify, in a statement, said Monday's penalty “sends a powerful message — no company, not even a monopoly like Apple, can wield power abusively to control how other companies

interact with their customers.”

The penalty reinforces the EU's position as the world's most aggressive regulator of the tech sector. In recent years, the bloc has passed laws on data privacy, industry competition, content moderation of online content and artificial intelligence. Antitrust regulators have meanwhile investigated or fined Google, Amazon, Microsoft and Meta.

The fine is the most severe penalty against Apple since 2016, when the European Commission ordered the company to turn over 13 billion euros for unpaid taxes to Ireland. In a sign of how long the appeal process can drag out, that case is still winding its way through EU courts.

In 2022, the 27-nation bloc largely sided with developers in writing the Digital Markets Act that requires Apple to open the iPhone to competing app

stores and allow app-makers to directly accept payments. The rules go into effect Thursday.

In its latest quarter, Apple reported revenue of about $120 billion and a net profit of $34 billion.

Last month, Apple said it would comply with the new law by giving developers three options. They could stick with the status quo App Store system and continue paying up to a 30% commission of sales. Or they could accept alternative payments and reduce their commission to 17%, while taking on a new charge of 50 euro cents on every download above 1 million. Finally, they could avoid Apple's commission and distribute through competing stores, while still paying Apple's download fee.

Under Apple's plan, Spotify and other apps would be able to tell customers in their app about cheaper subscription prices online.

Apple's proposal for the App Store in Europe has sparked an outcry from developers large and small, who say that it fails to abide by both the letter and spirit of the law.

Apple has said its plan complies with the law, while minimizing the risk that iPhone users will encounter malware, spam or fraud.

Spotify has been one of Apple's most vocal critics. For years, the music streaming service has complained that the App Store's in-app payment system and 30% commission has put it at a disadvantage to Apple Music, which can sell subscriptions directly without a similar fee.

The rules have also hampered Spotify's efforts to expand its business into audiobooks and other services. Instead of charging for a book in the app, it has tried to avoid Apple's fees by directing customers outside the app

to pay, a process that it has called cumbersome and difficult.

Apple says Spotify's decision to link to its website means it doesn't pay for many of the services that benefit the music streaming service, including software tools and hardware improvements such as advanced media playback. It also complained that Spotify met with European regulators more than 60 times during the course of the investigation.

Daniel Ek, Spotify's CEO, has complained for years about the slow pace of Europe's investigation. Throughout the process, he pointed out ways that Apple's control over the App Store disadvantaged competitors.

“Without policymakers taking action, nothing will change,” Ek wrote in 2022 on X, formerly known as Twitter. “I can't be the only one who sees the absurdity.”