FTC Officials Looking Into Apple's Streaming Business Model, Say Sources

Apple may have a bigger business problem than displeasing Taylor Swift with its new Apple Music service; According to Reuters, U.S. regulators are said (by anonymous sources) to be looking into Apple's treatment of music-streaming rivals, now that the company has gone from selling only downloadable music to competing directly with alternatives like Spotify and Pandora. A slice: 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.

Comments

Computers?

[ArcadeMan]

Remember when Apple used to make computers?

Pepperidge Farm remembers.

Some precedent in the claimed wrongdoing

[Anonymous Coward]

This could be a cut-and-dry case. There has already been a lot of history with providers that also distribute. Typically you cannot put your competitors in a position where they cannot compete by controlling distribution. Of course, the details will determine the outcome; but, we've disallowed power companies selling electricity to dip into the profits of their electricity selling competitors by charging exorbant fees to use their power lines.

Yes, the power line fees are still there, but the companies that maintain the were forced to spin off the distribution network as a separate company, with independent management. I'd love to see the Apple Store do just that. It would separate all of the times when Apple abuses it's store front to put their products first at the expense of what people want.

Re:Some precedent in the claimed wrongdoing

[radarskiy]

" If they aren't colluding with other companies"

Except they already are, so we can skip this clause. They are making contracts with their suppliers that fix the prices for other people who are not a party to the contract negotiations.

Seems reasonable.

[fuzzyfuzzyfungus]

It doesn't seem surprising that the FTC would be nosing around. Apple got caught with their hand in the cookie jar, pretty damn seriously, in their 'negotiations' with book publishers(apparently Steve doesn't know not to commit illegal conspiracy over email...); and now they have an arrangement where they specifically forbid any of their competitors from doing anything in-app that would circumvent Apple's 30% cut(apps that can only be signed up for online are OK; but such apps are forbidden to link to the signup page in-app; either no sign-up information, or Apple-provided payment mechanism only); which more or less assures that they'll be able to undercut their competitors on iOS, unless some miracle has made the labels 30% or more more generous in their dealings with that competitor.

The barring a successful claim that iOS doesn't actually have market power; which seems unlikely, I'm not sure why this would pass scrutiny now that Apple has a direct competitor in the water.

Re:Seems reasonable.

[fuzzyfuzzyfungus]

If a 3rd party wishes to use Apple as a payment processor, then I'd agree that Apple has reason to expect a cut: payment processing costs money from anyone; and Apple's large collection of people with payment information already keyed in and a willingness to click 'buy' is certainly valuable.

Where I suspect that Apple may run into trouble(and would not mind in the slightest if they did), is the fact that they currently both forbid an app to link to an outside payment page(you can allude in general terms to the fact that purchases are to be made on your website; but you aren't allowed to embed the pertinent part of the site in your app or link to it directly) and Apple takes the same 30% for things like app purchases, where they do the payment processing, the storage, the delivery, etc. and for subscriptions purchased in-app, where they do nothing but the payment processing.

Were Apple to allow people to integrate their own payment mechanisms for subscription(even at the level of just using a webview of the appropriate page in their app), the situation would be of much less concern. They could probably still justify a price on the high end of the range for payment processors, thanks to their convenient integration and large customer base; but they currently forbid any level of integration from anyone who isn't them. When they place everyone else at this considerable and partially artificial disadvantage and offer competing services in certain areas, that seems like a problem.

Easily solved

[msobkow]

Apple just needs to have the streaming music division pay the appstore division the same fees as everyone else to level the playing field. The fact that they own both competing divisions then becomes a moot point, legally.

Re:Easily solved

[alvinrod]

I don't know if they'd be able to easily do that as the information that has come out has suggested they're already giving something like $.72 of every dollar to the record companies, so the only way to pay another division $.30 of every dollar would be to operate at a loss, which would likely lead to a different investigation for what amounts to dumping.

The easier approach would be for Apple to have their service follow the same guidelines where it can't have in-app sign-up which would preclude it from paying the other department and place it squarely within the same set of rules as its competitors.

In reality it's far more legally complicated than that as some non-Apple entity wouldn't have gotten the same deal as any entity that is or is some sub-part of Apple itself.

Re:Easily solved

[Shirley Marquez]

No, the result would be that the artists would get less money.

The artist payments from streaming services are calculated based on the actual revenue collected by the company. If Apple did this shell game, the artist share would only be 70% (or whatever their actual percentage is) of $7 rather than 70% of $10. The norm for other services has been that no royalties at all have been paid for listening during trial periods, because 70% of $0 is $0. Apple was forced to cave and pay royalties for their trial period because of its unusual length (competing services offer much shorter trial periods) and the expectation that a large number of users would sign up for it.

Spotify is different because its free listening tier is ad-supported rather than a free trial of the full service. It has two separate payment pools; one for subscribers and another for ad-supported free listeners. The subscriber plays currently pay artists about 10 times as much as the ad-supported plays. That can change depending on how successful the company is at selling ads.

Re:Do as I say, not as I do

[spire3661]

"Nice. Government can't complain as it does this all the time."

A government is not a business. The two are not analogs and your comparison is crap.