Spotify Pays ‘Apple Tax’ on Less than 1% of Subscribers, While Demanding Money Back From Songwriters

iPhone Spotify Earpods Laying On Book Credit: Mohd Syis Zulkipli / Shutterstock
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Spotify has been taking Apple to task over the past few months, claiming in a complaint to European regulators that the iPhone maker has been stifling innovation and competition by using the App Store to “deliberately disadvantage” those apps that compete with its own Apple Music service.

Spotify was fairly public about announcing the antitrust complaint, resulting in Apple releasing its own statement to refute Spotify’s claims, which included the allegation that Apple was deliberately blocking “experience-enhancing upgrades” to the Spotify app, such as Siri, HomePod, and Apple Watch support, and charging its 30% “Apple Tax” on Spotify subscribers, while giving its own Apple Music service preferential treatment. For its part, Apple accused Spotify of “wrapping its financial motivations in misleading rhetoric” and pointed the finger right back at Spotify, both for not making the effort to add new features to its app, as well as expecting to gain all of the benefits of being on the App Store without paying anything to Apple.

What the “Apple Tax” is Really Costing Spotify

According to Music Business Worldwide, it appears that Spotify is being even more disingenuous than we first thought. While Spotify has made a lot of noise about the 30% of its subscription fees that it’s required to pay to Apple, it seems that the real impact on Spotify’s bottom line is not nearly as serious as the company keeps making it out to be.

Back in March, Spotify CEO Daniel Ek suggested that Spotify relies very heavily on the App Store, and suggested that it would have to raise its prices across the board if Apple’s 30% “app tax” were to continue. However, in Apple’s response to the European Commission regarding Spotify’s complaint, which was revealed today, Spotify doesn’t actually pay Apple a 30% “tax” on much of anything. In fact, according to Apple, Spotify hasn’t paid any additional commission on a single subscriber obtained via the App Store in the past three years.

Specifically, Apple pointed out that Spotify paid a 15% revenue share on 0.5% of Spotify’s 100 million premium subscribers. This worked out to 680,000 customers — the ones that used Apple’s in-app purchasing (IAP) system to subscribe between the years of 2014 to 2016, when Spotify was still offering subscriptions directly in the app. The streaming service disabled IAP subscriptions after that, meaning that all subsequent subscriptions had to be made outside of the App Store, and Spotify no longer had to pay Apple anything at all.

MBW also adds that Spotify actually pays significantly less than even the standard 15% charge for those customers, as it also apparently benefits from label discounts. As one industry source suggested, Spotify really just wants to pay nothing at all.

Spotify Shooting Itself in the Foot

Meanwhile, Spotify still seems hellbent on doing everything it can to alienate the music industry, with Music Business Worldwide also reporting last week that Spotify determined that it overpaid most publishers in 2018, and now it’s actually asking for that money back.

Spotify has already been suffering a PR nightmare among music publishers, after it joined with Amazon, Google, and SiriusXM/Pandora to oppose the U.S. Copyright Royalty Board’s (CRB) decision to increase the royalties paid by songwriters. Apple, on the other hand, chose to stand on the sidelines, resulting in heaps of praise from the music industry.

The streaming services’ challenge to the CRB decision was already unprecedented, making them seem like bullies declaring war on the songwriting community, and now Spotify is stoking the anger of music publishers even further by using the new rules in its favour while still working to get them thrown out.

Spotify has found a loophole in the new CRB regulations that it has been so vehemently opposing, allowing the streaming provider to recalculate its payments and determine retroactively that it paid songwriters too much, and now it wants that money back.

I find it so hypocritical for a digital service that is appealing the CRB decision to then take advantage of the parts of that decision that benefit it. I guess we shouldn’t be surprised.

David Israelite, President and CEO, National Music Publishers Association

Although some would say this is simply a smart business decision on Spotify’s part — using the parts of the new regulations that benefit it while continuing to oppose those that don’t — it’s a move that feels like blatant hypocrisy to the music publishing industry, and it’s creating even more animosity against Spotify from that quarter.

What’s particularly egregious on Spotify’s part is that this clawback is based on a decision that Spotify is still appealing, meaning that if the new CRB regulations were overturned, Spotify would lose this particular advantage. A Spotify spokesperson, however, said that while they’re still appealing the CRB decision, “the rates set by the CRB are current law, and we will abide by them” — which to music industry officials translates to “taking advantage of them.”

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