$539 million fine: Spotify alleges "artificial advantage" as Apple calls it 'freeloader'

The European Commission is reported to be preparing to levy a massive €500 million ($539 million) fine against Apple over alleged anti-competitive practices in the music streaming market.

The fine, expected to be announced in early March, relates to an antitrust complaint filed by Spotify in 2019, accusing Apple of unfairly favouring its own Apple Music service over rivals on the App Store. Spotify claimed that Apple's 30% commission on in-app purchases harmed competition by adding extra costs for rivals like Spotify while exempting its own service.

Apple rejects accusations, says claims threaten competition

In response to the EU's looming decision, Apple denied any wrongdoing, stating that "Spotify pays Apple nothing" for the use of its developer tools and has seen enormous success on iOS despite its complaints.

Apple argued that Spotify seeks "limitless access" without paying for the value Apple provides through its App Store platform. The iPhone maker said the claims threaten to entrench Spotify's dominance in music streaming rather than increase competition.

"We're happy to support the success of all developers — including Spotify, which is the largest music streaming app in the world. Spotify pays Apple nothing for the services that have helped them build, update, and share their app with Apple users in 160 countries spanning the globe. Fundamentally, their complaint is about trying to get limitless access to all of Apple's tools without paying anything for the value Apple provides," Apple said in a statement to 9to5Mac.

This fine would be largest ever to be imposed on Apple by the EU

The €500 million fine would be the largest antitrust penalty ever imposed by the EU on Apple. While small compared to Apple's $365 billion in annual revenue, the fine carries symbolic significance in the EU's crackdown on anti-competitive behaviour by US tech giants.

In addition to the fine, Apple may be required to change its App Store rules to allow Spotify to communicate directly with users about alternative payment options outside of in-app purchases. Apple currently forbids apps from directing users to other payment systems, a practice known as "anti-steering."

Spotify: Apple gives itself "artificial advantage"

Spotify retorted that Apple's claims ignore the "artificial advantage" it provides Apple Music by controlling access to iOS users. Without regulation, Spotify said it faces "untenable options" of either accepting a 30% cost disadvantage or delivering a poor user experience.

"Spotify's success has happened despite Apple's best efforts to gain an artificial advantage by favouring their own music service at every turn while placing roadblocks and imposing unfair restrictions on ours," Spotify said in response to Apple's statement. "Under their current rules Apple controls Spotify's access to its own customers and gives Spotify one of two untenable options: We either have to deliver a poor user experience where we can't directly communicate how to buy or subscribe to Spotify on iPhones, or we have to accept a 30% cost disadvantage against our biggest competitor. This is not a level playing field. We support the European Commission and trust that they will take action soon to create a fair ecosystem for everyone involved."

EU investigation focuses broadly on music streaming

The European Commission declined to comment directly on the case. But competition chief Margrethe Vestager previously stated the investigation focuses broadly on music streaming services, not just Spotify.

Still, Spotify has been the most vocal critic of Apple's App Store policies. In 2019, Spotify founder Daniel Ek accused Apple of "stifling innovation" with rules that "purposely limit choice." The complaint extends Spotify's yearslong battle over Apple's commissions and restrictions.

App Store at the center of Apple's Walled Garden

For Apple, the Spotify complaint strikes at the heart of its tightly controlled app ecosystem. A positive EU ruling for Spotify could embolden other app makers to demand reforms to App Store fees and restrictions.

Apple raked in an estimated $85 billion from App Store commissions last year alone. The App Store constitutes Apple's second-largest revenue stream behind the iPhone.

The battle between Apple and Spotify can be seen as a representation of Apple's ongoing disputes with regulators and app developers who are trying to reduce Apple's control over iOS.

Ruling could force changes to the App Store

Regulators in both Brussels and Washington are advocating for a more equitable environment for app developers on iOS in comparison to the position of power held by Apple. The fine imposed on Apple by the EU over the App Store could potentially become a significant early success in the wider effort to limit Apple's influence on the iOS ecosystem.

Apple introduced some App Store changes to comply with new EU digital regulations, but developers claim its alternative payment system remains onerous. More significant reforms could follow if Apple is found guilty of violating EU competition law in the streaming music market.

The antitrust penalty would result from the European Commission's first formal conclusion into Spotify's allegations. EU regulators opened an initial inquiry in 2020 after siding with Spotify's grievances. The fine and policy changes could come within weeks as the EU nears completion of the probe.