Epic legal clash over app store monopoly
Apple’s app store is under fire for its monopolistic behaviour over large fees to the service, writes David Court.
Is the App Store a monopoly? Something odd happened this week. Apple’s stock price dropped nearly 5 per cent following impressive quarterly profits of US$1.40 a share versus the industry’s estimate of US$0.98.
Closer analysis reveals that its revenue was up 66 per cent for iPhones, 70 per cent for Macs,
79 per cent for iPads, 25 per cent for wearables. This, to my simple mind, suggests that its share price should be going up, not down.
Clearly, something else was stirring. And it was. The European Commission antitrust regulator Margrethe Vestager ruined Apple’s earnings party with news the company was to be charged with breaking European Union competition rules over the way it runs its App Store.
The charge relates to a complaint Spotify made to the European Commission two years ago, claiming that Apple was stifling innovation in that industry.
A slightly hypocritical position for Spotify to take, considering it only pays artists (and record labels) a 52 per cent share of net receipts through its own software ecosystem.
Nevertheless, the European Commission has decided it agrees with the Swedish music-streaming service and thinks Apple has a case to answer.
It released this statement on the charge: ‘‘Apple’s rules distort competition in the market for music streaming by raising the costs of competing music streaming app developers. This, in turn, leads to higher prices for consumers for their in-app music subscriptions on iOS devices’’.
If found guilty, Apple will be slapped with a (very) large fine and also be forced to change its policies, for the EU at least, that’s how big the stakes are here.
Apple, of course, denied any wrongdoing, quickly releasing its own statement with extra sass. ‘‘Spotify has become the largest music subscription service in the world, and we’re proud for the role we played in that.’’
The statement went on to say Spotify doesn’t pay Apple any commission on more than 99 per cent of its subscribers and only pays 15 per cent commission on subscribers that were acquired through the App Store.
Finishing with ‘‘they want all the benefits of the App Store but don’t think they should have to pay anything for that. The Commission’s argument on Spotify’s behalf is the opposite of fair competition.’’
Apple was, in part, able to fire out its response to the EC so quickly as it came just days before the start of its case against Epic Games, where it is again accused of running its App Store as an illegal monopoly.
Epic Games, like Spotify, alleges that Apple operates the App Store as an unfair monopoly as it only allows in-app purchases to be made via Apple’s own payment system, of which it takes a 30 per cent cut.
Epic Games took an arguably less-patient approach than Spotify’s two-year complaint, opting instead to force its own payment option onto its popular Fortnight app in August last year. The move provoked a predictable response from Apple, banning Epic Games’ apps from the App Store.
Epic Games now faces a pretty epic battle here as proving that the App Store is an Apple-run monopoly will not be enough, as that is not illegal under US law. Epic needs to go a step further and prove that Apple abuses its alleged monopoly to skew a market in its favour, using its position to hurt the competition.
The outcome of both cases is still anyone’s guess. However, the similarities of the two charges have clearly got investors a little spooked. I also don’t think the news that broke earlier in the month that Apple now lets Amazon bypass its standard 30 per cent App Store ‘‘tax’’ when selling individual purchases, such as movie and TV downloads and rentals, is unrelated.
My guess is that Apple fears regulators are likely to force a change of policy regarding its mandatory 30 per cent App Store fee sooner or later. And it’s preparing the mechanisms to allow rivals, with excellent legal teams, a way to bypass its mandatory ‘‘App Store tax’’.
There’s one thing I’m sure of: from a user’s perspective, it sucks when you’re forced to leave an iOS app, open a separate web browser, log in to your account (again) and then process your payment.
After setting up Apple’s new AirTags last week by simply bringing them near my iPhone, the rigmarole of upgrading my Netflix or Spotify subscription by performing several unnecessary steps, for example, is very unApple.