On 2 April 2015, reports began circulating that the EU Commission had been contacting major European music labels to discuss Apple’s upcoming music streaming service. After its recent purchase of Beats Electronics it has been widely reported that Apple wants to break into the music streaming market currently led by Swedish rival, Spotify.
Music streaming differs from purchasing music from conventional sources such as iTunes. The consumer is able either to listen to any music free (albeit interspersed with advertisements) or pay a monthly subscription fee to listen to ad-free music and even download that music onto their device on a temporary basis. Under typical business models, if users stop paying the subscription fee, the downloaded music is no longer playable, no longer possible to stream, or no longer ad-free.
It is believed that the EU Commission’s principal concern when contacting music labels is a fear that Apple will use its significant market power in neighbouring markets such as the smartphone market with its signature product, the iPhone, to force record labels to give the Beats service more favourable terms than those accorded to rivals. Such behaviour could even extend to forcing labels to deal exclusively with Apple thereby abandoning rivals such as Spotify.
There appears to be no evidence that such behaviour has been uncovered to date but the reports of the Commission’s enquiries show a proactive approach and a real understanding of oligopolistic technology markets. Experience has shown that once major technology players with synergies across multiple platforms enter a market, rivals without such cross-market coverage and resources tend to be foreclosed from competing effectively with their larger competitors. Perhaps of particular significance in this case is the fact that Spotify as the market leader is an EU company facing future competition from Google, Apple and even the new Tidal music service recently launched by hip hop mogul Jay Z.
It remains to be seen whether the Commission’s enquiries lead to the commencement of a formal competition investigation against Apple and/or others.
Apple are coming into this fast growing market relatively late. Their previous reticence was probably due to their concern over cannibalising MP3 sales through their own ITunes store. It remains to be seen how the entry by Apple, Google and others into this market will radically affect competition in the music streaming market and if so, whether Spotify will be dislodged as the current market leader.