You’ll remember that The Verge ran the leak of Spotify’s agreement with Sony Music. Now The Verge is running a story about subscriptions to the Spotify app from Apple’s App Store:
Spotify is trying to raise awareness around the fact that it’s cheaper to subscribe on the web instead of through Apple’s App Store. The leading subscription music service plans to email iPhone customers the below note encouraging them, if they haven’t already, to start paying at Spotify.com and save a few dollars. “In case you didn’t know, the normal Premium price is only $9.99, but Apple charges 30 percent on all payments made through iTunes,” the email blast reads. “You can get the exact same Spotify for only $9.99/month, and it’s super simple.”
Here’s the actual emails:
Quick–based on what you just read, who sets the price for the Spotify subscription through the App Store? Apple or Spotify?
I bet you thought that Apple forced an upcharge onto you because you bought the subscription through Apple and not from Spotify directly. It is true that Apple takes a 30% commission from all app developers for “digital consumables” bought through the app like subscriptions. (Apple also operates the App Store, actually created the entire market for apps in the first place, collects the money and pays it through–known as “transaction costs” in the trade. But let’s leave that to one side and pretend that Apple doesn’t deserve the 30% commission which clearly what Spotify wants you to believe.)
Apple doesn’t force an upcharge on anyone. Apple doesn’t set the price for the app or any digital consumable sold from within the app. The app developer sets that price–that’s right, Spotify sets the price.
So if the Spotify premium subscription costs $12.99 when purchased inside the Spotify IOS App and $9.99 direct from Spotify, that’s because Spotify is marking up the $9.99 price to take into account Apple’s 30% commission so that they end up netting $9.09–or since we’re talking about Spotify, $9.093. That price is set by Spotify, just like every other developer. It is not set by Apple.
And it also means that because Spotify charges more when the subscription is purchased through the App Store, Spotify decided to pass on the lions share of the cost of Apple’s commissions to their users. And if Spotify is telling you that you’ll be better off to subscribe directly from Spotify, you will be getting it cheaper, but it appears that Spotify will net about $0.90 more per subscription converted from an in-app purchase than they currently do.
Does Apple care? Just to put this in perspective, Apple made about $4 billion from the App Store last year and developers made about $14 billion. Given Spotify’s horrendously low conversion rate of “free” music users to subscribers, something tells me that Apple won’t be missing Spotify–but wait. Isn’t that called windowing? So Spotify is now windowing their syndication?
Something also tells me that this is more about Spotify’s smear campaign against their competitor Apple Music than it is about anything else. And here’s a hot tip.
You know the Federal Trade Commission and state Attorneys General that Spotify complained to about Apple Music? (A complaint that has gone nowhere.) There’s another division there besides the antitrust division.
The consumer protection division. You know–the one that handles false and misleading advertising claims.
One more thing–Spotify has been in this commercial deal with Apple as long as the Spotify app has been in the App Store. Now that Apple is competing with Spotify, suddenly we see Spotify turning on Apple. What makes you think that they won’t do the same to us? Like the way Daniel Ek handled Taylor Swift.
Yet another unnecessary misstep from Spotify’s PR team. Next they’ll be blaming Apple’s commission rate on Taylor Swift.
Where do they find these people?
Music Technology Policy 
Spotify pays 70% to labels and publishers, so if Apple takes 30%, Spotify is left with exactly … $0. They have no option but to increase sub prices sold via Apple’s App store. Probably didn’t matter too much when Apple wasn’t a direct competitor in the streaming space but now it’s different I guess.
LikeLike
It’s tricky to say who sets the price. Technically it may be Spotify, but they may have little real choice in the matter. According to the leaked Sony-Spotify contract, Spotify has to pay rights-holders (principally the major record labels) a minimum of $6 per month per premium subscriber. Publishers get another dollar or so. If similar terms are still in force, Spotify could not pay Apple $3 out of a $10 subscription and still have any margin for themselves. I don’t usually find myself in the position of defending Spotify, but in this case they may have a legitimate grievance. Equally, one can understand that Apple would want a slice of any revenue generated by apps on the iPhone (many of which, like Spotify, are ‘free’ in themselves), but a continuing 30% cut does seem steep when Apple is not (as far as I can see) providing any ongoing service to Spotify or its users once the app is installed.
LikeLike
That’s not quite right, Apple would take 30% and then Spotify would split with the rights holders. That 70% payout number is also not quite right although it is what Spotify puts out there (and it’s also virtually impossible to verify). Let’s say it is correct, the splits based on 100% would be 30% to Apple, 70% of 70% to the rights holders and 30% of 70% to Spotify for its own account.
In dollars based on $12.99, $3.897 to Apple, $6.3651 to rights holders and $2.7279 to Spotify.
Using the direct subscription at $9.99, $2.997 to Spotify, $6.993 to rights holders. Spotify makes 91% through Apple of what it makes on direct subscriptions.
The pure 30/70 is not exactly correct (see the leaked Sony agreement), but using it for simplicity.
LikeLike
Apple is treating Spotify the same as every other app developer. Apple provides ongoing services by supporting and making a market for the the apps, delivering their installed base and fulfilling the sales.
Spotify knows the deal going in and if it’s so bothersome to them, they can withdraw their app from the App Store at any time.
LikeLike