Apple Inc. Comes Under FTC Investigation for its Spotify-Squashing Tactics

FTC investigates AppleApple Inc. has been gearing up to relaunch its Beats Music streaming service at this year’s Worldwide Developers Conference.  However, Apple’s tactics have come under fire from competing services like Spotify, as well as the FTC and DOJ.  The FTC has purportedly launched an investigation Apple’s aggressive tactics with artists and record labels.  According to Bloomberg, “[t]he [FTC] is looking at whether Apple is using its position as the largest seller of music downloads through its iTunes store to put rival music services like Spotify Ltd. at a disadvantage.”  In an article from The Verge, its alleged that, “Apple has been pushing major music labels to force streaming services like Spotify to abandon their free tiers, which will dramatically reduce the competition for Apple’s upcoming offering.”

The FTC’s investigation comes as Apple is attempting to reach deals with more than a dozen artists for limited exclusive rights to music as part of Apple’s plan to revamp its Beats Music streaming service.  According to sources, the FTC’s investigation is expected to complicate Apple’s revamp efforts.  FTC officials have reportedly discussed Apple’s practices with more than record label.  While the investigation is in its early stage, investigators are probing whether Apple’s efforts will change the way music labels work with other streaming services, for example, curtailing ad-supported music and pushing more songs into paid tiers of service at higher rates, one of the sources told the news agency.

The problem for companies like Spotify, is that only a small portion of their listeners are paid listeners.  Currently, Spotify has approximately 60 million listeners, but only 15 million of them are paid users.  Getting music labels to kill their free tier services offered by Spotify could put Apple in an advantageous position to make a large grab at consumers when it relaunches its Beats Music service.  It is too early to tell if the FTC’s investigation will yield any charges against Apple, but it begs the question whether Apple Inc. is a music monopoly.

While the FTC has initiated its investigation into Apple, Apple has said that it has not demanded streaming apps curtail or end their provision of free music.  This is interesting, given the fact that many music industry execs are said to be in favor of ending free music altogether.  Even still, it would be risky for Apple to enter into agreement with artists or record labels that restricted them from also placing their music on other services.  That would certainly look like anti-competitive behavior.  Thus, while music execs and Apple wish to curtail free music streaming, the FTC might have something else to say on the matter.

Apple has not responded to the FTC’s investigation, but many feel that Apple’s tactics in seeking exclusivity from artists and label are anticompetitive and seek to completely suppress the free streaming of music.  This is not the first time Apple has been accused of anti-competitive behavior.  In the past, the company lost a price fixing case in the United States, which was about the company looking into strike deals with book publishers to raise the prices of books online, which would have massively affected, Inc.  There was another unsuccessful case made against the company, when it first launched the iPod.  Other music sellers were apparently not allowed to sell music that was available on the iPod, to download through the iTunes store.  Only time will tell how whether Apple will skirt an FTC enforcement action this time around.

More on FTC’s investigation on Apple.