Swedish music-streaming leader Spotify (NYSE: SPOT) is tired of paying the Apple (NASDAQ: AAPL) tax. Spotify has now officially filed a complaint with the European Commission, alleging anticompetitive behavior stemming from Apple's dual role in operating one of the largest mobile platforms on Earth while also competing with third-party developers within the same platform. The news comes over a year after Spotify was reportedly seeking assistance from European regulators back in December 2017, and nearly four years after the U.S. Federal Trade Commission started to look at the situation (the FTC has yet to take any action).
This isn't the first time that Spotify has made its case, and it likely won't be the last.
Daniel Ek. Image source: Spotify.
What Spotify is asking for
In a blog post, Spotify founder and CEO Daniel Ek explained why his company has taken formal action against Apple after "careful consideration." Ek argues that the Mac maker has implemented rules in recent years that "purposely limit choice and stifle innovation." Spotify has unsuccessfully attempted to address its conflict with Apple to no avail, so it's now taking its case to regulators.
"Apple is both the owner of the iOS platform and the App Store -- and a competitor to services like Spotify," Ek writes. "In theory, this is fine. But in Apple's case, they continue to give themselves an unfair advantage at every turn."
In order to cope with paying Apple's 30% tax, Spotify has to either absorb the hit to its already-thin margins or pass along the tax to consumers in the form of higher prices. The latter scenario makes Spotify Premium less competitive with Apple Music's pricing. Neither is ideal. If Spotify chooses not to offer in-app subscriptions at all, then Apple "applies a series of technical and experience-limiting restrictions on Spotify," according to Ek. For example, Spotify can't even email customers outside of the app, since Apple owns and tightly controls the customer relationship.
Ek lays out three things Spotify is seeking: All apps should be subject to the same rules and restrictions, including Apple Music; consumers should be free to use any payment system they wish; and platform operators should not be able to restrict communications between third-party developers and users.
Spotify has a sympathetic ally
This all comes as U.S. Senator Elizabeth Warren has recently proposed breaking up numerous tech giants, including Apple. Warren has specifically argued that Apple should not be allowed to compete on the platform that it owns and operates due to anticompetitive effects. In a recent interview with The Verge, she said:
Apple, you've got to break it apart from their App Store. It's got to be one or the other. Either they run the platform or they play in the store. They don't get to do both at the same time.
The lawmaker's specific proposal would designate any tech companies with annual global revenue of $25 billion or more as "platform utilities," and such companies would be barred from owning the platform while simultaneously participating on said platform. With revenue of over $260 billion in 2018, Apple is far above that threshold.
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Evan Niu, CFA owns shares of Apple and Spotify Technology. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.