How Could Apple Eliminate Spotify’s Free Music Streaming?

Source: Thinkstock

Reports are circulating that Apple is working with record labels to try to get Spotify’s free music streaming service shut down. Eliminating the free tier of popular streaming services like Spotify would be convenient for Apple, which is expected to relaunched the Beats Music service as early as June, without a free tier anywhere in sight. But how could Apple accomplish the aggressive goal of getting rid of Spotify’s free-tier service (and ruining Spotify for its millions of non-paying users)?

Micah Singleton reports for The Verge that Apple has been pushing major music labels to force streaming services like Spotify to abandon their free tiers, thereby reducing competition for the Beats streaming service it’s expected to relaunch at WWDC in June. The company’s aggressive tactics have allegedly drawn scrutiny from the Department of Justice (DOJ) and the Federal Trade Commission (FTC), and Singleton reports that while DOJ officials have already interviewed high-ranking music industry executives about Apple’s conduct, it appears that the FTC has “taken the lead” in recent weeks.

Spotify has 60 million listeners, of which only 15 million are paid users. Singleton notes that getting labels to pull their music from the freemium tiers of Spotify and similar services “could put Apple in prime position to grab a large swath of new users” when it relaunches Beats, which is expected to feature exclusive content. Apple has been wielding its considerable power in the music industry to stop labels from renewing Spotify’s license to stream their music through the free tier of its service. A music industry source told The Verge, “All the way up to Tim Cook, these guys are cutthroat.”

The publication’s sources also said that Apple had offered to pay a sum equivalent to YouTube’s licensing fee to the Universal Music Group if the label stopped allowing its songs on YouTube. If Apple succeeds in convincing labels to stop licensing their music to free services from Spotify and YouTube, it could “take out a significant portion of business” from the two biggest rivals to Beats.

But the DOJ and the FTC aren’t the only regulatory bodies investigating Apple’s business practices as they relate to the music industry. Claire Atkinson reports for the New York Post that the European Union’s Competition Commission has launched a probe of Apple and of providers of other premium streaming services to determine whether they are working with music labels to unfairly squash free streaming services.

A source told the Post that the EU is concerned that the premium services are working with labels to limit or end their licenses with freemium services. Several streaming services and music labels have received questionnaires that ask about arrangements with Apple. A music industry executive explained to the newspaper, “There is concern in the industry that Apple, with its enormous market share and distribution power and what it can do in terms of pricing and promotion can have an unfair competitive advantage.”

The reports indicate that Apple is concerned about the potential size of the market for its streaming service, with the Post reporting that Apple wanted to price its service below the $9.99 a month fee charged by Spotify, but failed to negotiate terms that would make that possible and instead settled on matching Spotify’s price. The three major record labels — Universal Music Group, Sony, and Warner Music Group — have struggled as consumers get on board with free and paid “all-you-can-eat” digital music services, and all have voiced concerns over the widespread availability of free music.

Writing for Quartz, John McDuling reports that the labels believe that Spotify’s free tier hurts download sales and dissuades people from buying subscriptions, while Spotify argues that the free tier of its service is crucial to its subscriber growth. In the meantime, Spotify has relaunched an aggressive promotion — which McDuling says “very much looks like a land grab for customers” — before Apple launches its highly anticipated streaming service this summer. Quartz points out that Spotify has upped its lobbying spending in Washington, bracing itself for the next major battle in the streaming music wars.

But Vulture’s Lauretta Charlton argues that there are three reasons why Apple won’t be able to eliminate Spotify’s free service, namely: “You can’t defeat the Internet,” “the Department of Justice doesn’t like it,” and “Apple doesn’t need the money.” Charlton writes that eliminating Spotify’s free service won’t guarantee that listeners will opt in to paying for the premium service, but instead guarantees that many of them will find others places to listen to music for free, either by pirating music or by listening to it on YouTube.

Apple is potentially in significant trouble with the DOJ and FTC, and all for a streaming service that Charlton notes doesn’t matter much to the company’s bottom line. No music streaming service has yet turned a profit, and while Apple is focusing on establishing a new platform to sell physical goods and figuring out a way to revive iTunes, eliminating your free Spotify subscription would likely be “very unpopular collateral damage.”

Killing free options from Spotify and YouTube wouldn’t make Beats an immediate success, either. If Apple succeeds in getting free services shut down, users aren’t likely to surrender to Apple and pay for Beats. People who currently use Spotify are more likely, in that scenario, to either pay for Spotify’s premium service or just look for somewhere else to get free music. In either case, eliminating Spotify’s free streaming isn’t likely to serve the purpose that Apple hopes it will.

More from Tech Cheat Sheet:

More Articles About:   , , ,  

More from The Cheat Sheet