U.S. government
antitrust regulators are looking into claims about whether Apple’s treatment of
rival streaming music apps is illegal under antitrust law, according to three
industry sources.
Apple recently launched
a new music streaming service, Apple Music. It also provides the App Store
platform for competing streaming services including Jango, Spotify, Rhapsody
and others.
Apple takes a 30 percent
cut of all in-app purchases for digital goods, such as music streaming
subscriptions and games, sold on its platform.
While $9.99 has emerged
as the going monthly rate for music subscriptions, including Apple’s, some
streaming companies complain that Apple’s cut forces them to either charge more
in the App Store than they do on other platforms or erode their profit margins.
The Federal Trade
Commission is looking at the issue but has not begun a formal investigation,
said the three industry sources, who requested anonymity. The agency has had
meetings with multiple concerned parties, one source said. The agency meets
with companies routinely, and a formal investigation may not materialize.
Antitrust lawyers
interviewed by Reuters were divided on whether Apple’s policies had the makings
of an antitrust violation.
A spokeswoman for Apple
declined to comment. The FTC also declined to comment.
As all-you-can-eat music
subscriptions become more popular among listeners, a wave of companies have
rushed in to cater to the demand. Apple has long been a leader in digital music
through its iTunes Store, but it has been a relatively late entrant to
on-demand streaming.
Streaming services’
chief grievances with Apple stem from the company’s 30 percent cut. To avoid
it, customers can sign up for a streaming service through their Web browser,
but the streaming industry sources argue that many consumers do not realize
that is an option.
Tyler Goldman, CEO for
North America of the music streaming company Deezer, said the bite that Apple
takes out of his company’s $9.99 U.S. subscription fee leaves little for
Deezer.
“The margin in music is
quite small, and the App Store diminishes the margin.”
“It will be an issue for
the industry going forward. You can either raise your prices and not be
competitive with Apple’s price, or you can have no margin,” he said, adding
that he was unaware of whether Deezer has talked to the FTC.
Two of the industry
sources say that the antitrust concerns focus on restrictions in the App Store.
These include a prohibition on advertising in the app that the company is on
other platforms, a ban on marketing in the app that consumers can also buy
directly from the company’s website, and a ban on linking to a company’s
website from within the app. These restrictions apply to all apps, not just
music streaming apps.
Although Google also
offers a music subscription service and charges a 30 percent transaction fee in
its app store, its policies for app sales have drawn less ire from rival
streaming services. Industry sources say the company places fewer restrictions
on those transactions.
Although Apple dominates
the digital music business primarily through iTunes, its share of the global
smartphone market is relatively small. Google’s Android operating system
accounts for 78.9 percent, with Apple’s iOS system clocking in at 17.9 percent,
according to research firm Gartner based on sales in the first quarter of 2015.
Antitrust lawyers
knowledgeable about the tech industry were split on whether Apple’s policies
violated antitrust law. Apple is free to charge whatever fee it likes for
transactions in the App Store, some argue, and companies do not have to sell
their goods there.
It is legal to have a
monopoly but it is not legal for monopolies to use their clout to hurt
competitors, said Jeffrey Jacobovitz of the law firm Arnall Golden Gregory.
Apple’s critics may be
seeking to convince the FTC to use Section Five of the FTC Act, which prohibits
“unfair or deceptive acts or practices,” to pursue Apple, he said.
Since the Justice
Department’s successful prosecution of Apple for colluding with publishers to
push up the prices of ebooks, the FTC may be inclined to take a closer look at
Apple’s involvement in the music business, said Jacobovitz.
Another antitrust lawyer
dismissed most of the concerns as companies complaining about actions that were
undoubtedly aggressive, but still legal.
“They’re (Apple) tough
business people,” said the lawyer, who spoke on the condition of anonymity.
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