Spotify and Apple are at each other’s throats – with the music biz caught in the middle

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MBW review-1Each week, The MBW Review gives our take on some of the biggest recent news stories. This time, things are hotting up between digital music’s two biggest rivals. The MBW Review is supported by FUGA.


Princepic“You discovered a premium feature! You must have a Premium subscription to unlock it.”

This is the message Spotify wants to pop up in front of users of its ad-supported service – but says Apple won’t let it.

According to the Swedish streaming platform’s Jonathan Prince, Apple has told Spotify that the message violates its App Store rules – despite, he says today, it not linking to any offer, purchase or outside website.

Apple takes a very different view on things.

This is the latest development in a major fallout between the two companies that started off technical, but is getting increasingly ill-tempered.

The outcome stands to have serious consequences for music rightsholders everywhere.


“As a valued developer in the App Store, we’re disappointed with the public attacks you’ve made and appreciate the opportunity to set the record straight.”

BruceSewellSo goes the beginning of a private letter from Apple’s General Counsel, Bruce Sewell (pictured inset), to his equivalent at Spotify, Horacio Gutierrez, sent on Friday (July 1) – which just-so-happens to have since found its way online.

It’s three pages long, and contains a series of slaps in the face to Spotify.

These include the suggestion that the Swedish firm has “benefited enormously” from its association with the App Store, where it has enjoyed 160m downloads.

Sewell comments that Apple finds it “troubling that you are publicly resorting to rumors and half-truths about our service”, adding:

“To imply that Spotify should not have to pay to avail itself of the benefits of Apple’s hard work would give you a tremendous advantage over other developers. It’s simply unfair and unreasonable.”

Another potshot: “We did not alter our behavior or rules when we introduced our own music streaming service or when Spotify became a competitor.

“Ironically, it is now Spotify that wants things to be different by asking for preferential treatment from Apple – in essence arguing that because we compete Spotify should be treated differently, given waivers and exemptions from the rules that pertain to all other developers on the App Store.”


Spotify-EmailSome context: Spotify has long hated Apple’s stipulation that 30% of any new subscription secured through an iOS app is retained by the Cupertino giant.

Along with other third-party app makers such as Pandora, Spotify regards this as a punishing and greedy ‘app tax’ on its growing yet loss-making business.

Apple, on the other hand, points out that it has to pay for its massive App Store somehow, and that keeping a near-third of revenue from its partners is an unobtrusive way of doing so.

In an attempt to offset the lost income caused by this ‘app tax’, Spotify’s in-app subscription price on Apple devices stands at $12.99 – three dollars higher than its standard $9.99 per month Premium charge.

Since the launch of Apple Music in June last year, things have taken a turn for the worse.

Spotify says Apple’s ‘tax’ is now flagrantly anti-competitive; that it’s being forced to charge $12.99 per month for a subscription on the iOS store, while Apple’s streaming rival costs just $9.99-per-month.

To combat this disadvantage, Spotify wants to be able push users outside the App Store, where they can avoid Apple’s ‘app tax’ and sign up to Premium for $9.99-per-month.

No way, says Apple.


Apple-Logo-rainbowIn his letter, Apple’s Bruce Sewell reveals that Spotify submitted a new version of its app on May 26 to Apple, which was rejected due to a “number of issues”.

These included the fact that – in Apple’s eyes – Spotify’s in-app purchase feature had been removed and replaced with “an account sign-up feature clearly intended to circumvent Apple’s in-app purchase rules”.

According to Sewell, Spotify built a feature which enabled it to email would-be customers “within hours” asking them to sign up to Premium via the company’s website – thus avoiding the ‘app tax’ entirely.

This, says Sewell, was a “clear violation” of App Store rules – a fact which was subsequently communicated to Spotify.

On June 10, another Spotify app was submitted but, according to Sewell, “again incorporated the sign-up feature directing… customers to submit an email address so they could be contacted directly by Spotify”.

He adds: “Spotify’s app was again rejected for attempting to circumvent in-app purchases and not, as you claim, because Spotify was simply seeking to communicate with its customers.”


EkSpotify now suggests that Apple won’t even allow it to run a pop-up telling users they have reached an area of its ‘free’ service inaccessible for non-Premium customers.

This has nothing to do with obtaining email addresses or pushing consumers to avoid the ‘app tax’, claims Jonathan Prince – it’s simply a premium conversion tool.

Considering that the biggest players in the music business have been pushing Spotify to up its conversion of free users to paid users – and that the major labels are currently renegotiating their long-term licensing deals with Daniel Ek and co – this is controversial territory.

Let’s say that Spotify is finally about to make the move which the likes of Lucian Grainge have long been waiting for: locking off sections of its service, maybe even specific recordings, from non-premium subscribers.

If Apple won’t allow Spotify to push this message via its iOS app – even without linking to an ‘app-taxed’ purchase area – it spells concerning news for those labels who want to maximise streaming’s income potential.

Apple, though, appears to be suggesting this is a smokescreen: that Spotify is actually primarily interested in ducking a fee which all other third-party app creators cough up.


110613_prince_376Spotify’s cause received a boost last week when Massachusetts senator Elizabeth Warren – tipped by some to become Senator Hilary Clinton’s VP should she be elected US President – targeted Apple’s dominance in a speech.

“While Apple Music is easily accessible on the iPhone, Apple has placed conditions on its rivals that make it difficult for them to offer competitive streaming services,” she said – suggesting that Apple used its size to deliberately “snuff out competition.”

Spotify’s Jonathan Prince (pictured) predictably applauded her sentiments.

“You know there’s something wrong when Apple makes more off a Spotify subscription than it does off an Apple Music subscription and doesn’t share any of that with the music industry,” he said.

“They want to have their cake and eat everyone else’s too.”


Screen Shot 2016-04-04 at 13.35.51The MBW Review is supported by FUGA, the high-end technology partner for content owners and distributors. FUGA is the number one choice for some of the largest labels, management companies and distributors worldwide. With a broad array of services, its adaptable and flexible platform has been built, in conjunction with leading music partners, to provide seamless integration and meet rapidly evolving industry requirements. Learn more at www.fuga.comMusic Business Worldwide

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  • drk@dynamicrecording.com

    Open letter to the Music Industry:

    As you know, there is a lot of discussion regarding the fair payment

    of writers and performers of music

    that is being streamed – whether for a very small price per stream or for free.

    At Dynamic, where we have many, many recordings available on CD Baby,

    we feel that

    our income has been adversely affected by the policies in place right

    now. A look at our earnings (and therefore the earnings of CD Baby too!)

    demonstrates that through the first quarter of 2016, our revenues are

    only at 67% of the same quarter last year.

    2015 was down slightly from 2015, and I’m guessing that if we had not

    added additional titles during 2015, the difference

    may have been more significant. If this trend continues through

    2016, being down 33% in CD Baby income is not good.

    And we’re only one company on CD Baby – if other musicians, record

    companies, independent performers, etc. are seeing the

    same trend, it’s a serious loss in income to people who are not being

    compensated properly for streamed and free music.

    We believe CD Baby should unite with the others who have taken a

    stand to gain reasonable payment for artistic endeavors.

    Spotify payment to Dynamic Recording:

    63 streams – $.06 cents. This is a major rip off.

    Radio stations pay us 8.5 cents per play.

    cdBaby, iTunes, amazon all pay us well.

    Smart music buyers love the free music and do not purchase or download.

    Many top Artists have pulled there music from streaming, because their sales

    and downloads have dried up.

    Sincerely,

    Dave Kaspersin

    President

    Dynamic Recording Studio Independent Label

  • willbuckley

    Whatever one might think of Apple, for many it will be impossible to have any positive feelings about Spotify. They brokered the ill conceived deal for interactive streaming with equity deals, then went after the sale of physical product with open-ended freemium deals; going even so far as to cut a deal with Starbucks elimination the sales of CDs at thousands of store.

    Traditionally, radio has tried to hide behind ‘discovery’ as a reason to not fairly compensate recording artists. But with Spotify there’s no pretense with Ek using the drop in physical product sales to make his case for streaming. We have to ask. Why are so many people who know nothing about the music business trying to control it? And why do we let them?

    Why are the stakeholders, the artists, sitting back en masse and allowing others to take the bread off their table.

    • Mister Williams

      It’s the fault of the music industry, not Spotify….Spotify are nowhere near big enough or powerful enough to be gamechangers at the level that people say they are.

      A year or so ago they had 40 million subscribers…that’s nothing! Most of those free subscribers would never buy the music that they use Spotify to listen to….and a lot of the music they listen too, they have already brought, via a CD…that may be sitting on a shelf or in a cupboard somewhere…easier to use Spotify.

      The music industry rejected everything online up until ten years ago or so…the music industry has always tried to snuff out online music….that’s why illegal download sites sprung up…they filled a gap that the music industry created.

      The music industry has always treated music fans with contempt. Massively overcharging for CD’s in the eighties…issuing 20 or 30 different versions of singles to rip off dedicated fans… and then spitting out tiny royalties to artists.

      Spotify pay 70 percent of their revenue to the rights holders…that is a magnificent percentage….

      But the rights holders are the major record labels, not the artists…and they pass on only a tiny percentage to their artists.

      Youtube royalties are tiny in comparison to Spotify royalties….and pretty much everything that’s on Spotify is on Youtube.

      Spotify aren’t the problem…they are part of the solution, but they are not the problem

  • ilexx

    It’s extremely odd to me that Apple has “rules” that restrict Spotify from communicating with their customers. As these are Spotify’s customers.

    I don’t know why Apple thinks these ppl are Apple’s customers. Yes they have iTunes and access to the app store but they are actively subscribed to an app through the Apple store but what they want is Spotify, in this case. These ppl are Spotify’s customers but yet Apple can bully them. It’s quite disgusting if you ask me.

    It’s bad enough that aren’t sharing data on these customers but to basically black ball them from communicating with their customers is ridiculous. Ppl should see or hear about these things and want to sign up with Spotify directly. If there is anyway for ppl to do that, that’s what they should do.

  • Ryan

    I’m with Spotify on this one. Apple got this model from telco’s who put a 30% surcharge on anything “bought” off prepaid/postpaid account in the early days of digital content on mobile. Telco’s in some cases, especially in emerging markets, pay up to 24% of a $1 they get to contract sales channels like retailers so a reason for the quantum. Apple do not have that excuse and this is not their core revenue although a juicy one for them.

    Apple are fast becoming a content bully monopoly with their hardware dominance in the top end of the market. Its understandable for them to do it as I would do the same in their position but it works against the consumer interests for choice and kills competition for best product for the consumer. They can’t keep up this act that the app store is separate from the Apple digital products it sells as they are all managed strategically by the same operational team. (my assumption) Can it be fair that Apple gets to make more margin from Spotify music streaming service than Spotify does? Nothing wrong with the principle of charging something as a channel but should be around the 5% mark for them to make a 3% mark above what the credit card companies charge them in merchant fees. No way they can justify the 30% in app store operational expense.