[ad_1]
It’s been a good month for Spotify. While the music streaming giant hasn’t had many of those in recent years, it looks to be righting the ship since layoffs in December as the group celebrated strong earnings and toasted an EU ruling against one of its biggest nemeses: Apple.
Last Monday, the European Union slapped Apple with a €1.8 billion ($1.95 billion) fine for preventing streaming platforms from informing users of cheaper offers away from the app.
As a new EU competition act comes into law, Spotify’s five-year battle with Apple is increasingly looking like a David vs Goliath contest, and a look at the companies’ respective share prices would suggest Apple is wobbling.
Why Spotify and Apple are fighting
If you’re an iPhone owner among Spotify’s 236 million subscribers, you might be able to cast your mind back to paying for your first Spotify subscription, thanks mostly to its time-consuming nature.
You were likely sitting on your phone ready to sign up, before you were asked to search for Spotify on a browser to make your purchase. You would eventually return to the app to log back in and start listening. Because of Apple’s tight controls, you couldn’t simply sign up there and then in the app.
If you’re an Apple Music subscriber, the sign-up process was so simple you’re probably unlikely to recall the routine “double-tap” you used to start paying Apple a subscription
This has been the crux of the streamer’s ongoing gripe with Apple.
Apple charges large developers a 30% commission on purchases and in-app purchases, including subscriptions, made through the company’s famous iOS platform, while charging some smaller developers a reduced rate.
About 85% of developers of free apps don’t pay Apple anything because they don’t make any revenue from their apps.
Spotify has, in turn, limited its iOS app to avoid paying those commission fees. It’s an anti-competitive move that’s affected numerous other content apps, including Audible and Amazon’s Kindle app.
Apple said in a press release that Spotify pays the platform nothing. The Guardian pointed out that Spotify does at least pay a nominal $99 annual developer fee to the company.
Spotify’s bigger point, though, is that Apple actively deters consumers from buying competitors’ products, which is worsened by the fact that it already runs its own rival service to Spotify, Apple Music.
The EU’s investigation excluded the 30% commission charged by Apple in its investigation. However, this charge will go with the introduction of the upcoming Digital Markets Act (DMA).
David vs Goliath
Since Spotify launched its complaint with the EU about these practices, the group hasn’t minced its words in a coordinated lobbying effort stretching across Europe, the U.K., and the U.S.
Traditionally press-shy CEO Daniel Ek published an op-ed in the Daily Mail last year, in which he claimed the company couldn’t survive if it were founded today, thanks to Apple’s commission rules.
Earlier in February, Spotify rented out ads on bus stops across London criticizing Apple’s App Store rules.
Apple defended itself by claiming that 85% of app developers pay no fees to distribute through the app store, as free apps don’t pay any commission. It argued that developers with paid apps should have to pay to access the App Store’s billions of users.
Those arguments are likely little consolation to Spotify, which has been forced to get around that 30% fine.
The back and forth presented itself as a David vs Goliath battle between the two tech companies.
While Spotify might go toe to toe with Apple in terms of name recognition, it is about a fifth of the size of the tech giant in terms of market value.
And despite Spotify also—as Apple points out—sitting atop the music streaming industry, the role of David is one the group appears keen to have played up to.
The year of Spotify?
It’s difficult to know how Europe’s move to try and force Apple to open up its App Store will impact Spotify financially, mainly because there is no real comparison to what it means.
The group will change its app in Europe following the rollout of the EU’s DMA on March 7, which will make it easier for users to pay in the app and receive in-app promotions.
To get a simple idea of how investors think Spotify’s coup might play out, you just need a glance at the streamer’s share price.
Spotify made some easy gains in valuation with the brutal culling of 17% of staff before Christmas last year, its biggest-ever round of layoffs as the company sought efficiency gains.
But in the month since Spotify released its fourth-quarter earnings, which showed better-than-expected income and subscriber numbers, shares in the company have jumped 10%. Spotify gave up some of its previous gains as markets closed Friday.
With earnings data digested, much of this rise is likely attributable to Spotify’s fight with Apple.
The streamer is about $10 billion more valuable at the time of writing than it was a month before. Shares rose nearly 3% in one day following the EU’s announcement of a fine on Apple.
Meanwhile Apple has lost nearly three times Spotify’s entire market value since the EU’s announcement Monday, losing $140 billion in market cap.
“Apple’s ongoing App store rule review in the EU will be an important factor to determine potential future states for pricing,” Barclays analyst Kannan Venkateshwar wrote last month before the EU’s verdict.
“Spotify seems to have contemplated alternative pricing models but Apple’s rules appear to have prevented further experimentation on this front.”
As Ek put it in a call with investors in February, the future upsides to Spotify’s new pricing models are “quite significant.”
There is a 366 million-person gap between the number of monthly listeners on the platform and paid-up subscribers. It’s unclear how much easier access to subscriptions will close that gap, but at least in Europe, Spotify is about to find out.
Spotify is also planning to make audiobook purchases in the app and the launch of a superfan platform as new tangible ways of driving income in a post-DMA world.
Ek isn’t finished berating Apple, and he is far from satisfied with how the app market is laid out. Following the EU’s ruling, Ek said Apple wants to “close down the internet and make it theirs.”
But moves to break up big tech in Europe will likely have ripple effects elsewhere.
“As opposed to a couple of decades ago, regulators on both sides of the Atlantic, tend to work more in tandem, or at least get inspired by each other,” Emmanuel Legrand, a music industry expert and editor of Creative Industries News, told Fortune.
After a turbulent battle for profitability that has rivaled its scrap with Apple, the EU’s announcement could signal a new dawn for Spotify, just as Apple fights its own demise.
[ad_2]
Source link