FTC launches antitrust review of Apple music business

Cecilia Kang, writing for the Washington Post:

The Federal Trade Commission has launched an antitrust review into Apple’s treatment of competing music-streaming apps that are sold through its iTunes App Store, according to three people with direct knowledge of the matter. And while this probe specifically relates to the market for music streaming, the implications may be much greater.

At the heart of the probe is this: Music-streaming companies, such as Rdio, Spotify and Rhapsody, rely on Apple to sell their products to consumers. And Apple takes a cut of that money, even while it is installing its own rival service on every iPhone and iPad.

Apple is a big target and has some level of control over the market. One question that arises: Is Apple unfairly stifling competition here?

  • Jim McPherson

    I think it’s hard to make the argument that continuing to follow the policy that’s been in place since the birth of in-app purchases is “unfair or deceptive”.

    That said, I think Apple ought to find a way that products & services that happen to be sold in-app but can be consumed on multiple devices wouldn’t be subject to the 30% cut. It’s fascinating to me that Amazon can sell a physical book through their app and use their own payment processing, but they can’t do the same with an eBook. Streaming music and video is in a similar situation. Ultimately the user experience is suffering because of disagreement over the payment rules, with a mix of companies paying the fee and complaining about it and companies not paying the fee and complaining about it.

    I’m not sure if there’s a good solution that doesn’t devolve into all major-vendor apps being free and there being a “content” purchase through the vendor’s own payment system to get most of the functionality. But if there is one, I bet Apple can find it.

    • rick gregory

      it’s not just the payment processing though that’s part if it. It’s also the store presence. It’s as if Nordstrom had a small section in each store for Macy’s and Macy’s could sell to Nordstrom customers right there. Even if Macy’s sold through their own payment processor Nordstrom is still providing visibility and distribution value there.

      That’s an imperfect analogy (aren’t they all?) but Apple provides Rdio, Spotify, Amazon and other competitors with distribution and payment services. Both of those are worth something.

      IF Apple is forced to provide those for free then the rule should also be that Apple’s forthcoming Music app for Android should be carried on the Amazon store and Amazon should have to provide visibility and payment services for Apple Music and so on.

      • Jim McPherson

        In this case they aren’t distributing anything though. The physical app, sure, but there are lots of free apps that they distribute for free, and they’re not collecting 30% of the ad revenue. They’re not distributing Spotify’s or NetFlix’s streams or Amazon’s books.

        • Moe Better 11

          Apple is distributing everything – though. Just because other can and its a “physical?” app, does not mean this is no distributed by Apple.

          Yes, Apple does not get a % (that I know of) for ads on the App, but app ads suck and make me not want to use the app… Ads for the app ghetto (for the most part).

        • rick gregory

          In this context, it’s exposure of the product to the market and deliver of the product to that consumer. Show me another sector where one company is expected to not only host a competitor’s product but allow them to sell their products for free in the host’s store.

          • Jim McPherson

            A cable company that also happens to be a content producer (Comcast / NBC) is still expected to carry content from other producers. Local channels are mandated to be free.

          • rick gregory

            Not a good example. Local channels are mandated to be free because they were/are delivered OTA. Comcast doesn’t carry content from ESPN etc for free. ESPN and the like pay Comcast. Rather like Rdio, Amazon, Spotify, etc pay Apple. So… um… your example kind of agrees with me/the status quo.

          • Meaux

            “ESPN and the like pay Comcast.”

            This is so unbelievably false that it calls into question any other claim you make. Comcast pays ESPN a hefty price. ESPN is the single most expensive channel for cable companies.

          • rick gregory

            /headdesk… You are, of course right. And I shouldn’t post before coffee.

  • It’s a tough call. Given Apple’s position in the market, one could probably go either way. But I’d say this: if Spotify, Rdio and others don’t want to pay the commission, they should stop selling subscriptions through their apps. They can have a message, as the Audible app does, saying that to buy anything you need to go to their website.

    • rick gregory

      especially since there’s little benefit to the user to setup a sub in app. You do it once so signing up on the web and then logging in inapp isn’t a big deal.

      • matthewmaurice

        Ah, there it is. The ultimate question is going to be, is the consumer harmed by what Apple is doing? It’s really hard to say yes. Even when Apple has developed de facto monopolies (e.g. iTunes Music Store) it’s never adversely effected the customer (beyond the inherent harm of having to use iTunes). This sounds like an investigation the FTC starts and promptly ends with a finding of no wrongdoing so that if anyone complains they can say “hey, we investigated, they’re clean.”

    • Jim McPherson

      Having the in-app purchase is all about reducing the barrier to entry. There’s a % of people that would buy on impulse if it took 2 clicks but if they have to navigate to a website to do it, won’t bother.

  • adrianoconnor

    I have absolutely no time for Apple’s policy here, it’s exactly the opposite of what’s best for the customer. The money they make from the 30% of digital media purchases is probably minimal versus income from the hardware, but the pain it causes customers by not letting us buy books in the Kindle app (etc) is very real. I really hope they lose because they clearly don’t know how to do the right thing on their own.

    I also hope they wake up and see the stupidity of the 16GB base model iPads and iPhones. The richest company in the world does not need to play this game — and again, it hurts the customers more than it helps Apple. It’s no different to the ugly PC stickers and crapware that we like to poke fun at — they’re chasing for profit in the wrong places. Apple should hold themselves to a higher standard.

    • rogifan

      I used to use a Nook for reading ebooks. There was nothing painful about going to the B&N website, buying the book there and then reading it on my Nook app. Of course doing it all inside the app would be great but I don’t think the way it is now is as painful as some making out to be.

      • In the case of Audible, I’m thinking they like that we have to go to their website. A whole lot more real estate to promote their wares than a phone or tablet screen. It also lets them control the user experience in searching for books, reviews, lists of best sellers, etc. I know it’s Amazon with lipstick, but at least they have not cancelled or converted our pre-Amazon accounts or agreements.

    • A 16 GB base model is only stupid for people who need more than 16 GB. It’s not like they only have a 16 GB model.

      • Exactly. I have a 16GB iPHone 6 that does just fine. I use particular apps on it that I need when I’m out and about. Any other apps, I use on my 128GB iPad Air, and then I have still other work that I do on my Mac. Each device has its niche and I’m good with that, as I’m sure a lot of people are.

        On the music side, being able to stream my music via iCloud makes the 16GB iPhone even more useful, especially since I’m on T-Mobile which doesn’t ding my GB limit for many music services, including iTunes. I have three or four albums on the iPhone,managed via a playlist on my Mac, just in case. Otherwise, I just stream what I’ve purchased (or listen to the ad supported radio “stations” based on a couple of bands I like).

        • Moe Better 11

          yet streaming sucks – in just about every form and some people use their phone as their camera. My 64GB iPad3 does just fine, but my 32GB iPhone 5 always runs out of space… some day, some day I will clean it out.

          16GB has its uses, but I think many people fail to see what they needs might be in a year or two – 16GB may be good today – for some -but what about 6, 12 or 18 months out? I have seen several 16GB models running with 0.0% free space on the drive – its a bit scary.

          • guess I’m lucky not to be one of those people, probably because I have the iPhone, the 128GB iPad and the Mac Mini, so I can portion out the usage cases very well. Yes, if someone didn’t have all that, it’s better for them to get a larger memory device.

    • rick gregory

      As I said below…

      “Apple should host apps from competitors who can then sell using Apple’s infrastructure and Apple should do this for FREE? They should provide distribution and payment processing to their competition for nothing?”

    • Moe Better 11

      no companies really has a clue, though Apple is close – they do miss the boat fairly often, though they also nail it way more often than anyone or another company.

      As far as the new 16GB model of phones – yeah – Apple probably should keep those for mostly corporate sales – as they are nearly useless to the average user who may actually use their phone for photos, apps, music and god forbid, video. I think a 16GB model has its place, but 32GB should be the regular baseline. It is nice that they have a 128GB model – wonder when they will go to 256GB? w00t.

    • Moe Better 11

      oye – what Apple policy? What is so bad for customer? You will never have time, unless you make time.

  • So, it’s okay, according to the FTC, for monopolies like cable companies to stop us from using hardware we want, or have access to competitors, and all that falderal and yet what Apple is doing is bad? A prime example of having highly-paid lobbyists in Washington.

    • Moeskido

      That was my initial reaction.

    • Moe Better 11

      yes and no – there is a clear conflict of interest, but then Apple’s policies have not changed over time – yet their business has. Companies who have “market dominance” do have a higher responsibility – though they often fail – see Dow Chemical, IBM (circa 1960), Microsoft (circa 1990), etc…

      Companies will always want to buy out, buy off, crush or other wise marginalize any competition. That is the nature of things… just look at most old school cable or phone companies – they are often horrible, charge a lot and expect you to be “happy” with sh!t.

    • Meaux

      Cable companies are required to allow you to use your own hardware and have been for the past 15 years. Why do people insist on propagating lies to support their priors.


      • Moe Better 11

        what lies? Cable companies lie all the damn time. They are regulated monopolies for a reason… well “sort of regulated” anyway and ‘they’ are trying to make it competitive though the old Com companies are trying to merge with their competition to deliver even suckier suckatcular service (and greater profits!).

        Yes, capitalism is the best system, but there is no such thing as pure capitalism, since it eats itself for breakfast.

        In other words, checks and balances are required. Trust no one!

        • Meaux

          The lie that you can’t use any hardware you want. I’ve been using a Tivo for 8 years without issue. I have to pay $1/month for the card, but it’s a lot better than using the terrible cable provided box.

      • The problem with your argument is they drag their feet and make sure a TiVo won’t work without an adapter – which never works right. Half the shows Imwant to record don’t g recorded because the tuning adapter got hung up. Cable cards are junk and don’t work right either way too often. Most times in an installation is takes trying more than three to get one that works. So just because the law says they have to let us use what we want doesn’t mean they are going to make it work well.

        • Meaux

          I have never had an issue with any of my CableCARDs and I have had three with two different providers.

          • I’ve had at least six with my current provider and the previous provider’s cards never worked properly. The tuning adapters always work poorly. And I also take into consideration the FCC fined cable providers for not making cable cars more readily available years ago. Until then they refused to provide them to many people.

  • rick gregory

    Not this again…

    Apple should host apps from competitors who can then sell using APple’s infrastructure and Apple should do this for FREE? They should provide distribution and payment processing to their competition for nothing? How does that make any sense?

    It’s already kind of amazing that you can get apps that compete directly with Apple in their store but asking them to allow competition to use Apple resources to make sales and for Apple to do that for nothing is silly. I’m not stopped from buying something and using it… I just have to do that via the web which really isn’t a huge deal especially for a subscription that I’m going to set up once.

    • Scott Adams

      It might be too much to expect Rdio, Spotify and Rhapsody to understand basic business principles.

      The FTC on the other hand has no excuse.

    • Jim McPherson

      Apple is providing a hardware device, a platform, and 1st party software. It probably shouldn’t be too much to ask for the 1st party software to compete on its own merits vs. 3rd party software.

      I think Apple should get something for the use of the platform by other apps, but 30% of continuous revenue doesn’t seem like the right thing.

    • Moe Better 11

      this is not a binary world … it is not 30% or 0% … why do people always pick straw man arguments like this? Maybe its time Apple re-align its model.

      • rick gregory

        You might want to google the meaning of strawman before you misuse it again.

        Apple is providing sales and distribution/marketing exposure to a competitor as is. The question seems to be taking a fee for that and, secondarily, the ability of Apple to control it’s own app store.

        • Moe Better 11

          You might want to google yourself, before you think you know something.

          • from your strawman argument, “Apple should host apps from competitors who can then sell using Apple’s infrastructure and Apple should do this for FREE?” That is NOT the question.
          • rick gregory

            Oh do enlighten me then. Because s I understand it the complaint, according to the above is:

            “…Music-streaming companies, such as Rdio, Spotify and Rhapsody, rely on Apple to sell their products to consumers. And Apple takes a cut of that money, even while it is installing its own rival service on every iPhone and iPad.”

            So it appears to be PRECISELY about Apple taking a cut of the money and presumably the asked for remedy is that they do not take such a cut, that is that they be able to have Apple host their apps and provide exposure and distribution for those apps for free.

  • Scott Adams

    Competition. That’s funny.

    They Way Apple Competes… bought Sound Jam and turned it into iTunes, created the iPod, dragged the labels into this era of digital distribution and created the market, created the iTumes Music store, developed iconic iPod ads, bought Emagic for Logic Pro, created GarageBand, developed their own lossless data format for music, created AirPlay and AirPort, created the iPhone, created iOS, created the iOS App store, created the iPad, created Apple TV, established the annual iTunes Festival on two continents, bought Beats, created the Apple Music service…and that’s just since 2000.

    The Way Rdio, Spotify, and Rhapsody Competes… created streaming service, created a website, created an app

    There’s no competition.

    • Moe Better 11

      Yes, but Apple should and can do better. There is much that does not work correctly, properly – for many involved (customers, developers, 3rd parties, etc..) and its not like Apple is failing to reap its rewards.

      “bought Sound Jam and turned it into iTunes” – some would see this as a bad move. I mean iTunes is better on OS X, yet it still kind of a cluster*F at times. It should not be that way. Maybe if they stuck to music or “tunes”…

  • MacViolinist

    The FTC declined to confirm that it has launched a formal investigation.