Apple is about to release a huge update for the iPhone, coming in early March. It’s a response to the Digital Markets Act, and it will affect all 27 countries in the EU (the U.S. is only affected by some of these changes, though that could change in the future if the U.S. government follows the EU’s lead). But some app developers are up in arms—like Spotify, which has called the changes “extortion”. Where does the truth lie?
Under the current arrangements, developers pay a commission to Apple when they charge for their apps, or on-app purchases. The DMA was partly prompted by complaints from companies like Spotify. Spotify filed an antitrust complaint against Apple in 2019, calling the commission a tax.
After the new rules were announced and described as extortion by Spotify, Apple responded in a statement to me and others: “We’re happy to support the success of all developers—including Spotify, which has the most successful music streaming app in the world. The changes we’re sharing for apps in the European Union give developers choice—with new options to distribute iOS apps and process payments. Every developer can choose to stay on the same terms in place today. And under the new terms, more than 99% of developers would pay the same or less to Apple.”
A little background: Spotify stopped accepting premium subscriptions in the app in 2016, to avoid paying commission to Apple. And in July 2023, it switched any customers who had signed up for the premium tier to the free, ad-supported service, inviting them to sign up again using a different payment method outside the app.
This means that right now, Spotify is not paying anything to Apple for placing the app in the iPhone App Store. Developers of free apps pay nothing to Apple to have their title in the App Store. Since there are 1 billion iPhones out there, it’s a clever way to reach a huge audience. The market for streaming services is huge and growing fast, with Spotify the leading player.
The changes of the DMA are certainly complex—you can read details of them here. But where it most affects companies like Spotify is in something called the Core Technology Fee. The new rules mean that in the EU there will be options for alternative app marketplaces. These marketplaces can choose to use alternative payment methods. They won’t pay commission from the sales to Apple, but they will pay the CTF ($0.54, 0.5€). That fee is paid on the first annual install, after the app crosses the threshold of 1 million. If your app gets 999,999 installs, you pay nothing, if it’s 1,000,001 downloads in a year, the total owed to Apple is 0.5€.
So, what’s the fuss about? Well, if you have 200 million downloads (Spotify’s subscriber number is higher than that), you are suddenly paying very significant sums.
If Spotify decides to stick with the current terms, it will continue to pay nothing. But, understandably, it wants to offer its subscribers the most appealing way to switch to premium by signing up and paying in the app. To do that, it needs to pay the commission Apple requires under the current terms or else pay the CTF under the new terms, for example.
Apple’s North Star, it says, is the privacy and security of users’ experience. The App Store is very safe, and keeping it that way is not cost-free to Apple.
Apple’s view may be that developers like Spotify want access to the huge iPhone audience without recognizing or paying for the value that it brings.
