Apple Music is under fire.
Its antagonists include politicians: Senator Al Franken sent a letter to the Department of Justice and the Federal Trade Commission last week calling for an investigation into Apple's App Store. The Minnesota senator says that Apple unfairly takes a 30 percent cut of Apple Music competitors' subscription revenue, forcing competitors to charge more.
Consumer advocates are also taking aim: the nonprofit Consumer Watchdog has independently called for an investigation into Apple's dealings with music labels.
And, of course, to other streaming services, Apple's practices seem unfair—and they want consumers to know about it. Earlier this month, Spotify sent emails to its users explaining they can pay for subscriptions outside of the App Store for a cheaper price. Rdio CEO Anthony Bay has publicly called out Apple, claiming the company is making it more challenging for music streaming companies to compete with Apple Music.1
It's understandable that music streaming companies would be upset—the music industry is hard enough to navigate without having to compete with the very companies on which you depend for new customers to find you. But while Apple may be putting its competitors into a bind, it's not clear that Apple is doing anything illegal. Its practices might seem monopolistic. But what might look like a monopoly from the losing side might, from the winner's vantage, just look like winning.
Here's what's not in dispute. Apple charges a non-negotiable 30 percent fee on revenues from in-app purchases for digital content. So, that means when you buy, say, a digital magazine, book, or song via an app you downloaded from the App Store, the companies selling those products must hand over 30 percent of the money they bring in to Apple.
For streaming companies, that 30 percent is significant. One industry insider tells WIRED that since around 70 percent of revenue from music streaming already goes to music labels, publishers, and distributors to pay for the rights to the music itself, Apple’s additional fee makes it near impossible to bring in any revenue from iOS users at the regular subscription price.
For Rdio, meanwhile, that situation is untenable. “From our point of view, 30 percent makes it uneconomic,” Rdio CEO Anthony Bay tells WIRED. “If you keep prices at $10 and give money to Apple, then you're losing money before you start."
While music streaming services like Spotify, Rdio, Rhapsody, and Tidal may charge $9.99 per month to those who sign up via the companies' websites, they're forced to charge 30 percent more to users who download the apps and subscribe through iOS. Apple Music doesn't have to pay a fee to itself, of course, which means the company can sell its streaming service for $9.99 flat.
Apple's terms also prevent these services from advertising within their own iOS apps that subscribers can find lower prices if they don't sign up via the App Store. (Apps are also banned from creating tiered plans, such as family plans, and from offering promotions, both of which Apple does.) “The number one complaint from billing is this issue,” Bay says. “Consumers are forced to pay a higher price and aren't aware they can get it cheaper.”
This is a real issue for the streaming music services because, as one industry insider says, the majority of new users come through mobile apps, many of which are on iOS. For Android users, on the other hand, even if apps are in the Google Play store, the insider says the services are not required to go through Google’s billing system, so they don’t have to pay the additional fee or hike prices.
Multiple reports have it that the FTC is currently investigating these claims to determine if they violate anticompetitive regulations. (The FTC declined to comment on any possible investigation to WIRED, and Apple did not reply to WIRED's request for comment.)
Apple has been found in violation of antitrust law in the case of e-book price fixing. But streaming services hoping for a reprise of the e-books scandal with these questions around the App Store may face an uphill battle.
To prove an antitrust violation, the FTC would first need to demonstrate that Apple has monopoly power. But Android is a ready competitor to iOS, and—as Spotify's email to subscribers make clear—users can get the service for less by not going through Apple's App Store. "The question," says University of Baltimore law professor Robert Lande, "is what happens to Apple's share of the music streaming market" in the coming months or years.
When I ask Rutgers University law professor Michael Carrier about whether the iPhone App Store could be seen as its own market—and that Apple might have a monopoly in that market—he says market definition is always highly contested in situations like these. “At the end of the day, what does the consumer view as a substitute?” he asks. “If the iPhone is really a unique market, then you could make the argument that the iPhone is the market, the App Store has a huge percentage there.” But determining that uniqueness isn't assured.
Even if the FTC could show that Apple has monopoly power in a market, the agency would also need to demonstrate that Apple’s practices are predatory, not just business as usual. “Then it's whether or not Apple is taking actions that make no sense for its business other than harming competitors,” says Carrier. But Apple's terms affect not just Apple Music's direct competitors, but have long had an impact on other digital content distributors as well, making it more difficult to prove that this behavior is directed specifically at Apple Music rivals.
The FTC could make other claims against Apple, such as using the FTC's Section 5, which allows the agency to go after unfair methods of competition that may not meet the higher standards of antitrust law. But often, Carrier says, competing companies make claims, the FTC investigates, and nothing happens. Carrier says, "This is not a slam dunk antitrust case."
1UPDATE 1:35 PM ET 07/27/15: This story has been updated to accurately reflect the claim Rdio CEO Anthony Bay has made.
