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Apple's Woes Rise as Spotify Alleges it of Unfair Practices

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Apple AAPL has been accused of unfair practices and stifling competition in the music streaming space. Notably, the complaint has been filed by music streaming giant Spotify SPOT with the European Commission's antitrust regulators.

Apple launched its music streaming service, Apple Music in 2015. Despite bolstering its position with partnerships and acquisitions in the music streaming space, the iPhone-maker still lags Spotify.

While Apple Music had 56 million subscribers (paid and free) as of fourth-quarter 2018, Spotify’s global premium subscriber base grew 36% year over year to $96 million in the last reported quarter. 

Its noteworthy that even though Spotify competes with Apple in the music streaming space, the former relies heavily on the latter for distributing its service on Apple devices. The imposition of stringent rules by Apple on its platform puts its rivals like Spotify at a disadvantage.

Apple’s Unfair Restrictions

Apple introduces “rules on the App Store that purposely limit choice and stifle innovation at the expense of the user experience”, per Spotify CEO.

To maintain its leading position in the music streaming space, Apple blocked Spotify and other players from providing services on Siri, Homepod and Apple Watch. Notably, this limits the choices offered to consumers.

Spotify and other digital service providers are also subjected to a 30% “Apple Tax” when consumers make purchases using Apple's in-app purchase system. Additionally, developers are also charged when customers upgrade from a free version to a premium music service.

Also, higher taxes compel companies to increase their membership fee. Notably, the revised membership fee is higher than the fee charged by Apple Music, making the companies lose their competitive edge.

Apple also charges Netflix NFLX with “Apple Tax”. To put an end to such unfair practices and boost its top line, Netflix is testing a new payment method to bypass the taxes, per reports.

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Spotify’s Request to The Commission

Spotify believes that had the restrictions not been in place, the company could have a larger subscriber base.

Other apps on the App Store including Uber and Deliveroo, which do not compete with Apple’s services, are not subjected to such taxes. Spotify requests the same set of rules and taxes for all app developers on App Store, including Apple Music. 

Additionally, unless fair rules are there in place, no company should be subjected to the rules Apple dictates.

The European Commission is known for taking aggressive stance on tech companies that violate antitrust rules. Notably, in 2018, EU had slapped a $5 billion fine on Alphabet’s GOOGL Google for failing to abide by the law.

Google was fined for using the Android platform to force hardware makers bundle Google services and prevent the preloading of rival services on the devices.

Notably, if the accusations are proved, the company's balance sheet and brand image are likely to take a hit.

Apple currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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