Spotify launches anti-trust attack against Apple
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Spotify launches anti-trust attack against Apple

Streaming music market leader Spotify has launched an anti-trust complaint against iPhone-maker Apple, one of its biggest competitors. Apple, which made its name as a hardware company before branching out into services, has an unfair advantage over other players in the space that it can leverage in a number of ways – but they all boil down to this: making Apple Music work better (or cheaper, or more easily, etc.) than other streaming services on Apple devices. When you consider how many Apple devices are out there, that’s no laughing matter.

Spotify’s share price has appreciated by 25% so far this year

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Source: Yahoo Finance

On Wednesday, Spotify demanded that Apple be probed by the European Union (EU)’s antitrust agency over (according to Bloomberg): “how it allegedly squeezes rival music streaming services.” There’s history to this relationship, and this is it in a nutshell:

Way back when, Apple had a firm hold on the music market through iTunes. People flocked to the service purchasing iPods, then iPhones, and bought albums digitally at a similar price to offline sales (albeit, much more quickly and conveniently). Spotify existed at this time, but it wasn’t much of a competitor. It was just an app that could be installed on an iPhone, but apps couldn’t continue to function while a phone was doing other things (like checking Facebook, texting, or surfing the internet). Apple’s music app had no such limitation, making it a clear favourite.

Then, in 2010, Apple decided to change things up and offer app creators an update in iOS 4 that would let apps run in the background. A week later, Spotify had applied that update, and was suddenly offering millions of songs for a monthly subscription fee that was around the same as you’d pay for a single album on iTunes. Now with identical functionality, Spotify was able to grow to a point where it was worth $26.2 billion and had 100 million paying subscribers.

In 2015, Apple launched Apple Music – a streaming service that’s in direct competition to Spotify. As a result, Spotify doesn’t want any payments processed through Apple’s app store, as it would then have to pay a major rival 30% commission. Hence, Spotify’s payment system requires a manual web browser and separate registration. In the convenience-first world of digital access, that’s a considerable hurdle to adoption. And Spotify says it’s an antitrust violation.

Horacio Gutierrez, the company’s lead counsel, told the press: “Once Apple became a platform provider, but also a direct competitor, their incentive to disadvantage rival services, like Spotify, became even greater and their restrictions started to become more frequent and extreme.”

Time will tell how the situation plays out – but if Spotify’s complaint is taken seriously by regulators, that would be bad for Apple. Which would, but extension, be good for its competitors (like Spotify).

Analysts, certainly, are taking the threat seriously. In a note to clients, KeyBanc analyst Andy Hargreaves wrote: “The complaint claims Apple forces higher prices for comparable services by requiring use of its payment terms, and limits companies’ ability to market, promote and upgrade users within their apps. Spotify is largely on the right side in both facts and principle, which creates risk that App Store policy terms will be forcibly changed in a way that negatively impacts Services revenue and Apple’s brand.”

Disclosure
Dominion holds Spotify in its Global Trends Luxury Fund.


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