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Unsurprisingly, Spotify, a prominent Apple critic, came out swinging after Apple announced how it would comply with the European Union's new regulation, the Digital Markets Act, or DMA, calling Apple's plan “extortion” and a “complete and complete farce.” But on a Q4 2023 earnings call with investors, Spotify CEO Daniel Ek took a more muted tone regarding the new law, saying there was no real downside to its business, from an investor's perspective, as companies could stay on their current terms. With Apple. In fact, there are “potential future victories that could be very significant.”
Although Apple is abiding by the letter of the law — which forces Apple to open up its app ecosystem to new app stores and other payment mechanisms — it is certainly not complying with the spirit of the law, which is intended to foster more competition. Instead, Apple's complex new terms include a new core technology fee, which requires developers to pay €0.50 for every first annual installation over the million threshold, regardless of their distribution channel. It will also take a commission on digital goods and services made on the developer's website within seven days of a user clicking on an in-app link for external purchases.
Ek immediately criticized Apple on social media after its terms were announced, calling Apple's solution a “masterclass in distortion” and warning that Spotify “cannot afford these fees” if it wants to “be a profitable company.”
Speaking to investors at the quarterly earnings conference call, he reiterated that position, saying that Apple's solution was a “farce” that no reasonable developer would want to choose. However, he downplayed any negative impact Apple's rules might have on Spotify's business or revenue.
“I know there were initially some questions about whether or not this was a downside for Spotify. I don't think that's the case. So, you know, we still have the ability to adhere to the old terms, and continue to operate,” Ek said. “As we currently stand.” In other words, nothing will change for Spotify in the near term with the new law coming into effect.
Additionally, the CEO suggested that some positives could emerge from the new competitive landscape, adding that there are “future aspects” of the new rules that could be “very important.” The company had previously hinted at its plans In a blog post, saying the DMA will allow things like superfan clubs and alternative app stores, and will give creators the ability to download the Spotify for Artists app and Spotify for Podcasters app directly from its website. (It was this The first time Spotify mentioned Superfan ClubsIn reality.)
Additionally, the company previously said the relaxed rules will mean it can communicate with customers on its app about “new products for sale, promotions, Super Fan Clubs, and upcoming events, including when items like audiobooks go on sale.” Blog post read.
Ek again confirmed this was the case, telling investors that fan clubs were among the things Spotify could take advantage of the new rules to enable, something that couldn't have been done before because doing so would have made the whole of Spotify unprofitable. In addition to fan clubs, the CEO also suggested that, with the right regulations, Spotify could leverage its in-app purchases for things like audiobook purchases or increased operating hours — things that could make “a lot of sense” for Spotify's revenue. . , since it currently has to share 30% of that with Apple.
Today Spotify is still struggling to make a profit, which is why it wants to keep as much revenue within the app as possible. Last quarter, it made a rare profit of €32 million, but it made it this quarter A loss of 70 million euros – Although this is down from 270 million euros a year ago.
“Some of these more innovative things that we'd like to do, we're currently limited in doing on the iOS ecosystem,” he said. “Obviously my hope remains high that the European Commission will take action and allow this to happen,” he said, apparently referring to the implementation of the law on March 7 and the possibility that the Commission will force Apple to review its changes. . He noted that it would then be “much greater for the ecosystem, both for consumers and creators alike.”
Updated, 2/6/24, 2:45pm ETApple emailed a statement in response to Ek's comments (see below). The company also pointed out that Spotify pays Apple nothing and can 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 most successful music streaming app in the world. The changes we're sharing for apps in the EU give developers freedom of choice – with new options for distributing iOS apps and processing payments. Every developer can choose to stay On the same terms as today. Under the new terms, more than 99% of developers will pay the same amount or less to Apple.