Spotify, a notable critic of Apple, unsurprisingly came out on top when Apple announced how it is complying with the new EU regulation, the Digital Markets Act, or DMA, calling Apple’s plan “blackmail” and a “complete and utter farce.” . However, in his Q4 2023 earnings call with investors, Spotify CEO Daniel Ek took a more muted tone on the new law, saying there is no real downside to his business from a investors, as the companies can stick to their current terms with Apple. And in fact, there are potential “future positives, which could be quite significant.”
The streamer is one of many vocal critics of the new law, joining others such as Epic Games, Mozilla and Microsoft that have raised concerns about Apple’s implementation.
While Apple is complying with the letter of the law — which forces Apple to open up its app ecosystem to new app stores and other payment mechanisms — it certainly isn’t complying with the spirit of the law, which is meant to boost competition. Instead, Apple’s complicated new terms include a new basic technology fee, which requires developers to pay €0.50 for each first annual install per year above the 1 million mark, regardless of their distribution channel. It will also receive a commission for digital goods and services made on a developer’s website within seven days of a user clicking an in-app link for external purchases.
Ek immediately blasted Apple on social media after announcing its terms, calling Apple’s solution a “masterclass in distortion” and warning that Spotify “couldn’t afford these fees” if it wanted to “be a profitable company ».
Addressing investors on quarterly earnings call, he reiterated that stance, saying Apple’s solution was a “farce” that “no sane developer” would want to choose. But he downplayed any negative impact Apple’s rules would have on Spotify’s business or revenue.
“I know initially there were some questions about whether this would be negative for Spotify. I don’t think that’s the case. So, you know, we still have the ability to be on the old terms and continue the way we’re going right now,” Ek said. In other words, nothing changes for Spotify in the short term as the new law takes effect.
In addition, the CEO suggested some advantages that could arise from the new competitive landscape, adding that there are “future positives” in the new rules that could be “quite significant.” The company has previously hinted at its plans in a blog post, saying the DMA would allow things like superfan clubs and alternative app stores, and give creators the ability to download the Spotify app for artists and the Spotify app for podcasters directly from its website. (That’s it the first time Spotify mentioned superfan clubsin fact.)
Additionally, the company had previously said the relaxed rules would mean it could contact customers on its app about “new products for sale, advertising campaigns, superfan clubs and upcoming events, including the sale of items such as audiobooks.” read the blog post.
Ek reaffirmed that this is the case, as he told investors that fan clubs were among the things that Spotify could use the new rules to enable, something it could not have done in the past because doing so would have it makes all of Spotify unprofitable. In addition to fan clubs, the CEO also suggested that, given the right regulations, Spotify could benefit from its own in-app purchases on things like buying audiobooks or renewing hours — things that could be “quite significant ” for Spotify’s revenue, given that it currently has to share a 30% cut of that with Apple.
Spotify today is still struggling to turn a profit, so it wants to keep as much of the revenue as possible in-app. Last quarter it had a rare profit of 32 million euros, but this quarter it entered with a loss of 70 million euros — although down from €270 million a year ago.
“Some of these more innovative things that we’d like to do, we’re currently limited to doing in the iOS ecosystem,” he said. “So obviously, I hope the European Commission will take action and allow this to happen,” he said, apparently referring to both the implementation of the law on March 7 and the possibility that the Commission could force Apple to revise its changes. . He noted that it would then be “much bigger for the ecosystem, both for consumers and creators.”
Update, 2/6/24, 2:45 PM ET, Apple sent a statement in response to Ek’s comments (see below). The company also noted that Spotify pays Apple nothing and may continue to do so, even under Apple’s DMA compliance plan.
“We’re happy to support the success of all developers — including Spotify, which has the world’s most successful music streaming app. The changes we’re announcing for apps in the European Union give developers choices — with new options for distributing iOS apps and processing payments. Each developer can choose to stay with the same terms as they are today. And under the new terms, more than 99% of developers would pay the same or less to Apple.”
