GOOGLE LOVES SPOTIFY, WHICH IS HURTING APPLE, WHICH IS IN A WAR FOR GLOBAL DOMINATION AGAINST… GOOGLE. AND PEOPLE SAY MUSIC’S LOST ITS VALUE.
JULY 23, 2015 BY TIM INGHAM
If you hadn’t noticed, the rivalry between Spotify and Apple is starting to boil over.
And when we say ‘boil over’, we actually mean going from red hot to molten – and threatening to melt everything the music industry once held sacred.
Where to begin?
On one level, this is a battle of two similar products simply trying to out-do each other: see Spotify’s new Discover Weekly feature – a trenchant riposte to Apple’s popular ‘For You’ playlist picker.
On the other side, witness Apple’s insistence that its human-based music curation can trump anything Spotify’s Echo Nest machine-makers have up their sleeve.
It’s some contest.
But compared to what’s going on behind the scenes, it’s small fry.
The real Battle Royal is taking place in the judicial and legislative arena of the United States.
And this week, whispers have turned into bellows.
Things are getting nasty.
Apple is now facing tangible pressure from the US’s Federal Trade Commission for something it’s been doing for ages: taking a 30% cut of app and in-app purchases – including music subscription services – within iOS and iTunes.
This is hardwired into Apple’s technological DNA: in-app purchases on iOS have to be collected using Apple’s own API.
There are two arguments over the right and wrongs of this practice.
Apple supporters say it’s a godsend for startup app developers as it removes any initial monetary risk.
You don’t have to pay Apple anything upfront, and they don’t take any equity in your company (which, funnily enough, appears to be the de facto major label approach to such relationships).
But Apple detractors say this system is deeply unfair. Some refer to it as the ‘Apple tax’.
Their argument: Why should companies have to pay Cupertino’s finest such an arbitrary, hefty cut of their proceeds?
Especially when Apple’s main device rival, Android, from Google (remember that name, people, for a stunning callback – coming soon) doesn’t place such restrictions on its partners?
Enter the launch of Apple Music, and a fuller explanation of why 2015 is hosting an era-defining skirmish in the world of digital entertainment.
Since June 30, Spotify, Tidal, Rdio, Deezer and the rest have faced a painful headache.
They either maintain their standard pricing on iOS and swallow Apple’s share (so, charge $9.99 a month to the consumer but give away $3 of this payment to Apple) or increase their public-facing price by 30% (to, say $12.99) to make an allowance for Apple’s slice of the pie.
You can already see the bigger problem here already, I’m sure:
- If you choose to charge $12.99 a month on iOS, while Apple offers its own premium music service for $3 cheaper, you’re at a competitive disadvantage;
- If you opt to swallow Apple’s 30% share, you’re at a financial disadvantage.
Diddled if you do, diddled if you don’t.
So how do you respond?
If you’re Tidal, you charge $12.99 and hope no-one asks questions.
But if you’re Spotify? You come out swinging.
The Swedish-born streaming service just issued a ‘helpful’ message (pictured) to its entire US customer database.
On the surface, this simply gives music fans a handy tip: subscribe to our platform through a web browser, and you’ll save $3 a month.
(Users can still sign in to the iOS app for nowt, so long as their billing relationship was established elsewhere.)
There are completely legit, customer-friendly reasons to send out this missive.
But, you know, if you were kinda waging a lobbying assault on the world’s richest company, well, it would make for a very handy calling card.
They should put it on Etsy.
Spotify is throwing everything it can right now at one priceless objective: either force Apple to dismantle its 30% app ‘tax’ structure, or – even better – get it publicly emasculated by US regulators.
So far, it seems to be succeeding.
Not only has the FTC this week begun to mobilise against Apple’s self-created digital music advantage, but Spotify’s mission is gaining some heavyweight support.
Yesterday (July 22), the powerful Consumer Watchdog group in the US wrote to the heads of the FTC – cc’ing Loretta Lynch, the US’s Attorney General.
It expressed “grave concerns” over Apple Music’s competitive dominance vs. other music services on iOS.
“Based on information received by our group, Apple’s new streaming music service raises serious antitrust concerns… the market power and leverage Apple is exerting in the creation of its new streaming music service is very disconcerting and must be stopped,” says CW’s letter, which you can read through here.
Reckon you can guess how that ‘information’ came to be ‘received’?
Need a clue? Here’s a dead giveaway:
“[These concerns] require the government to put limitations on Apple… if consumers are to continue to have access to free streaming music services and so-called “freemium” music.”
Consumer Watchdog weren’t alone in this protest.
Another strongly-worded letter arrived on the doormat of the same recipients yesterday, from Democrat Senator Al Franken (pictured).
“I am concerned that Apple’s position as a dominant platform operator may actually undermine many of the potential consumer benefits of its entry into the market,” went Franken’s version of events, which you can read through here.
“To protect consumer choice and promote greater transparency of pricing, I ask that you review Apple’s business practices with respect to its competitors in the music streaming market.”
This is no longer just those friendly green streaming people from Sweden, then.
It’s an anti-Apple crusade. And it’s gaining momentum.
So who exactly is pulling the levers of this movement?
A good bet is Jonathan Prince (pictured) – Spotify’s uber-strategic Global Head of Comms and Public Policy.
Prince’s background? A professional political lobbyist who was deeply involved in public affairs for both Clintons (that’s ex-US President Bill and, possibly, next US President, Hilary).
He’s also thought to retain close links to Team Obama.
(You did notice that Al Franken was a Democrat, didn’t you? Come on, keep up.)
What about poor Apple, though – with its weeny $720bn market cap and $200bn cash reserves? Doesn’t it have any friends helping to defend it against this bombardment?
Well, it had one – a really important one – but they’ve been shown the red card.
Yes, Universal, and its on-demand freemium-bashing leader Lucian Grainge, stood firm with Apple in the beginning.
Considering music was the powder keg that blew Apple-Spotify hostility up into legal warfare, UMG were a very valuable ally.
Just like Apple, Grainge isn’t head-over-heels about Spotify’s free tier. And just like Apple, he wouldn’t mind clipping its wings.
But sources tell us that UMG is now “cheering Apple on from the sidelines, rather than marching together arm-in-arm”.
Here’s a theory: Universal was recently cleared by the New York Attorney General of being in anti-competitive cahoots with Jimmy Iovine.
If UMG had been found culpable of commercially favouring Apple over Spotify – and deliberately helping a rival damage the whole ‘freemium’ music model – there would have been cries of price-fixing from here to Silicon Valley.
Time to get out of dodge.
If that’s a conspiracy too far for you, let’s keep it simple: seeing words like “collusion”thrown around in earshot of the Department of fucking Justice will scare even large-scale French conglomerates like Vivendi.
Especially when those French conglomerates are 1/22nd of the size of the giant their subsidiary is trying to help out.
So… that headline up there. What’s that all about, then?
Google’s Chief Business Officer, Omid Kordestani (pictured), joined the board of Spotify last year in addition to his gig at the search giant.
Kordestani now straddles two companies that really don’t want to see Apple succeed: one in the world of music, and one in the the fast-growing, $250bn-per-year-plus global smartphones marketplace.
AKA: the small matter of dominating worldwide communications over the next decade.
No great shakes.
Also, in mid-2014 Re/Code reported that former Google exec Shishir Mehrotra was becoming a special adviser to both Spotify CEO Daniel Ek and the Swedish firm’s management team.
So, Spotify and Google, then. Sort-of rivals, yes. But also corporately cuddly.
As Cher and Chrissie Hynde once sung, Love Can Build A Bridge.
(That track’s not actually available on Spotify or Apple Music, which messes up the reference a bit. Curse you, licensing gods. You get the point.)
Which brings us onto a forgotten-but-ultimately-killer line in that 2014 Re/Code report (as freshly resurrected by a pointed Music Tech Policy blog on this very subject).
“… sources inside Google said that new YouTube head Susan Wojcicki has expressed interest in acquiring [Spotify] if it were for sale.
“It is not currently and there are no such discussions going on between the pair about such a transaction.”
Daniel Ek wants an IPO, everyone knows that.
A transactional sale was never going to be his dream ticket.
But… Spotify has recently been valued at an astronomical $8.5bn. Apple Music’s arrival will either dent or inflate that price. Time will tell.
All the while, Google has around $40bn sloshing about in cash reserves.
Google hasn’t made many billion dollar-plus acquisitions in the past, but one or two stand out:
- In 2011, Google bought Motorola for $12.5bn, so it has form high-rolling at Spotify’s level;
- And in 2006, it bought YouTube – actually, by far, the biggest music streaming service on earth today – for a bargain $1.65bn.
Who would ultimately gain the most from Google buying Spotify for all that money andreally entering subscription streaming’s square circle?
Well, there’s the major labels for one – including Grainge and Universal – who collectively own anywhere between 15%-20% of Spotify.
Oh, what a tangled web we weave!
But let’s be sensible about this, and refocus on the matter at hand: the burgeoning FTC tussle.
Green vs. white.
Europe vs. America.
Ek’s ambition vs. Jobs’ legacy.
Is it possible that Google, with all of its political, cultural and oh-my-good-God-what-do-you-know-about-me-please-don’t-shame-me-in-front-of-my-family-for-this-article ‘influence’, is assisting Spotify’s quest to get Apple’s derriere tanned by the FTC?
But what we can say with some certainty is the following:
Over the past year, Spotify and Google have become better friends. Friends with a very common enemy.
Where there’s smoke, there’s sometimes fire.
And if Apple’s caught ablaze, you can bet Google is getting a kick out of it. Music Business Worldwide