This Is WAR: Spotify Tells Subscribers Not to Pay Apple’s 30% Cut…

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Want to enjoy Spotify on your iPhone, a platform that Apple built?  Then you have to go through the App Store, where Apple takes 30 percent of the monthly subscription price.

That is, unless you go around Apple and its terms of service regarding subscriptions.  Here’s an email that Spotify just sent to subscribers, telling them how to circumvent that and the extra charge Spotify added on to pay the 30% cut.

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Of course, Apple doesn’t have to allow users to circumvent the App Store like that.  In fact, the terms of service between Apple and Spotify probably don’t allow it, though Apple may let this slide given heightened anti-competitive regulatory scrutiny.  Otherwise, Spotify could easily get priced out on the second-most important mobile platform in the world.

Barbie image by Sebastyne Young, licensed under Creative Commons Attribution 2.0 Generic (CC by 2.0). 

30 Responses

  1. Noah

    I think it was kind of crappy of Spotify to increase their subscription price when sold through the app store.
    Apple has a right to charge for facilitating the sale on their hugely popular platform and many other companies do not increase their subscription fee based on these kind of essential COGS.

    Comparatively it would be like if stores increased their prices when you payed in credit or debit instead of cash simply because they have processing fees. Nobody would use AmEx if that happened.

    • B3

      Except Spotify would be making ZERO money on every subscription they sold if they didn’t…

      $9.99 Retail
      -($3.00) to Apple
      -($7.00) to Rightsholders
      Big fat ZERO to Spotify

      • Faza (TCM)

        Oh, come on!

        Does it really take so much effort to look into the Sony contract published on these pages?

        FYI: Rights holders don’t get $7.00 per subscriber. Labels get the greater of 60% of gross revenue or $3.00 (the per subscriber minimum). Presumably, 10% of gross goes to the publishers, bringing total royalties paid by Spotify up to 70% of gross (which is the figure they quote on Spotify Explained).

        Your calculation should therefore be:
        $9.99 (retail)
        – $2.997 (Apple’s cut)
        $6.993 (gross revenue per user)
        – $4.8951 (royalties)
        $2.0979 (Spotify’s net revenue per user)

        By way of comparison, on a subscription bought directly from Spotify, these numbers are:

        $9.99 (retail)
        – $6.993 (royalties)

        Spotify thus makes just under 90 cents less (a 30% reduction) on Apple app subscriptions than it would on direct ones, if both were priced the same.

        • B3

          Except you’re mistaken. It’s ok… these things are hard to understand so i’ll break it down:

          1) The per-sub minima is $6.00 for label rights holders. The $3.00 you’re referencing is the now defunct desktop only tier that sold for $5.00 (60% of $5.00 is…. BINGO $3.00)
          2) Spotify is not allowed to deduct Apple’s platform fees before calculating the label share, which is why it’s defined as GROSS. If they were, it would be 60% of NET revenues. Basic finance.
          3) Same goes for publishing payments; they are calculated on Gross and do not allow for platform billing deductions to come out first.

          All this goes to say that…

          $9.99 Retail Subscription
          – ($3.00) to Apple (30% Fee)
          – ($6.00) to Labels (60% of Gross or Per Sub Minima of $6.00)
          – ($1.00) to Publishers (10% of Gross)
          Big Fat Zero to Spotify

          • DavidB

            I’m no expert, unlike yourself, but just reading the Sony-Spotify contract definition of ‘gross revenue’, it allows for deduction of charges for delivery of services from ‘telecommunications partners’. (See point (v) of the definition.) Whether this would cover iTunes I don’t know. Do you?

          • Faza (TCM)

            I stand corrected vis a vis the minimum. Thanks.

          • DavidB

            After writing my previous comment, it also occurred to me that on B3’s interpretation, increasing the subscription to $13 would not help Spotify. They could increase it to $100 per month, for that matter, but if this is all counted as gross revenue, they would then be paying $30 to iTunes, $60 to labels, and $10 to publishers, leaving nothing for Spotify. Clearly it can’t work like this, so some deduction from gross revenue must be allowed. On the other hand, the per-subscriber minimum, if still structured along the lines of the leaked Sony contract, does seem to be a real constraint.

          • agraham999

            This is likely less about margins and more about controlling who owns the customer…via the entire transactional relationship. So if Spotify wants to charge for additional things in the future, it becomes easier and more profitable to have you outside Apple’s wall. That said, it is also a good tactic to use against Apple for PR…as it gives them the ability to control a narrative that there is in fact an “Apple Tax” when in fact it is simply a business/distribution cost considering Apple has to continue to build and maintain these systems that make the process so easy and profitable. Spotify would be smarter to keep the monthly amount relatively the same, and then try to upsell through the Apple system for some other features.

        • alex

          simple fact of matter you are dumb to pay 3 dollars more when you can do it online.

      • Anonymous

        With operation costs they would actually be losing money.

    • Anonymous

      Actually a lot of other music services also pass on the charges.

      And stores are not charged a 30% transaction fee which is borderline insanity. The cost Apple is incurring by offering Spotify subscriptions in the store is pennies at most.

  2. Menan

    Makes sense for Spotify to step up now and tell their users to get off Apple’s ass because Spotify is indirectly contributing to Apple(their competitor) for their hard work of which any entity wouldn’t want.

    • Paul Resnikoff

      Seems like Spotify could also just play by the rules. Apple spent all the money, R&D and time building iTunes, and singlehandedly building the app market within which Spotify now exists. A 30% vig seems reasonable, especially since so much listening happens on mobile. And guess which kind of mobile?

      That’s right, the iPhone, the one Apple invented.

      • Anonymous

        I think you mean the mobile consumers greatly overpay for. All the money Apple spends on R& D is already recouped several times over from customers buying their products. Charging a 30% transaction fee is just double dipping because developers simply pass the fees onto the same customers who already overpaid for their phone. It’s a vicious cycle that just keeps adding to Apple’s massive horde of cash that they should be reinvesting into the economy.

        Apple could charge a 10% fee and still come out ahead. But then their competitors wouldn’t come out behind.

        • Tim F.

          This is simply not seen in the data, sorry. The income from the App Store is tiny. It may be true that a small number of revenue generating apps are subsidizing many, many, many free apps, but it’s simply not true that Apple could cut their share to 1/3 of its current rate and still operate profitably.

          I see absolutely no logic to the argument that Apple should run the store at breakeven or a loss and subsidize the effort itself with profits reaped from other products. Nor any logic to the idea that Apple should for some reason be trying to benefit their customers. Of course, your claims of “double-dipping”, “overcharging” for iPhones, and it being a vicious cycle point to where you are coming from and the value of your opinion.

          • Tim F.

            D’oh! “Nor any logic to the idea that Apple should for some reason be trying to benefit their customers” should have been: “Nor any logic to the idea that Apple should for some reason be trying to benefit their COMPETITORS.”

      • Perspective

        Paul, would you then agree that all software sold on any platform should give the OS/hardware manufacture a 30% cut? forever? this is a subscription. once Apple gives you the download they’re done. why should they get any percentage from the spotify sub? Apple is not doing anything except providing you a link to the app. the consumer already paid for the iphone there’s no reason for apple to continue to dip their greedy fingers into their wallets for a subscription to a service they are not providing. Should Spotify pay Apple to have their app available on itunes? yes, but as a one time cost per download not an ongoing cut from a service they’re not providing. also, isn’t 30% a little high?

      • Tim F.

        What I’m more interested in, since Spotify has been crying and unrelenting on this issue, is more transparency. Of Spotify’s paying subscribers, how many are using the service primarily on iOS devices? Of that number/percentage, how many subscribed directly through the app downloaded from the App Store?

        As I see it, both a large percentage and a small percentage works against them. That is, if they are getting a large number of paying subscribers from iOS and the App Store, that shows that there is value-add being provided by, if not the App Store, at least the ecosystem of Apple users itself. It also shows that the higher subscription rate over the standard rate is not a barrier to these users. If the number is very small, it shows that their potential users do know how to subscribe through other avenues and that the App Store policies aren’t impairing Spotify’s business.

        Further, if iOS users aren’t a large share of Spotify subscribers (it seems like much of their paying base was built out in European nations where iOS was not performing well) but a large number of those iOS subscribers are initiating subscriptions through the App, not only would the value-add of being in the App Store be apparent and the increased price would not appear to be a barrier, but it would likely make clear that the financial impact of the 30% cut is minimal — and yet for the last six months, Spotify has behaved as if a 30% cut on a subscription that is 30% more expensive is the most significant financial and existential threat to their business — and that is something I simply have not been convinced of, nor do I expect to be in the future.

        And even further, if iOS users represent a large share of Spotify subscribers but a small share are actually subscribing through the app, that would be most damning of all: it would show that the Apple ecosystem does have significant value to Spotify and the increased subscription rate is not a barrier.

        If Spotify wants to press this argument with the media and the regulators of the world and they want the support of consumers, I need a real argument, with transparency, and data. At the moment, I’m very much unimpressed, unconvinced, skeptical, and actually negative towards this argument without some actual data to show harm… and in fact, I’m hard pressed to see how the data could support their argument that Apple is monopolizing their ability to access consumers and am leaning towards believing that the data would demolish this argument — and hence, why we aren’t being granted access to any data to support this silly argument.

        • Tim F.

          One point of clarification on the post: it ends by saying that the terms of Spotify’s agreement with Apple to be in the App Store probably prevents them from advertising that they can subscribe through other means. This is 100% incorrect. The terms of the agreement prevent Spotify from advertising their availability on other platforms or alternative means of paying or from providing links directly to alternative payment methods on the web FROM WITHIN the app on the App Store. It does not preclude alternate advertising or attempts to make other payment options known that do not reside within the app or which flow directly from the Apple App Store.

  3. Bilbo

    @Paul, “play by the rules”. lmao. How long have you been covering the music business Pauly Anna? Passing the fee on is customary. Tidal does it, rdio does it, yada, yada. Margins are thin and this is simply business.

    I see nothing wrong with signing up direct with Spotify/whomever and/or porting an existing subscription to an iOS device. Your pot stir stick is silly and short.

  4. Me2

    Everyone knows everything, except where their money is…

  5. Eilo

    Who TF gives a shite. Besides Spootify is bootstrapped by the major labels (part Owners) anyway and Eeks deal with them would be much interesting to scrutinize than this tripe, especially with the artist law suits with the labels pending.

  6. Tim Wood

    Perspective: Sure, Apple shouldn’t lop 30% of everyone’s gross, but they can & do, because they are a successful rentier (via iTunes). They have the Times Square of digital media.

    IIRC the iTunes vendor agreement, the language is pretty clear that Apple must get 30% of gross sales made via an app, regardless of the payment method. So I’m not sure how Spotify’s change will stand.

    • Perspective

      Thanks Tim, didn’t realize that was in the agreement. i wonder how long that’s going to last, good luck to them.

  7. Salty

    What will happen to these platforms like Apple that rely on 3rd party subscriptions when Downloading from App Stores are a thing of the past? This is why HTML5 and Cloud Base Servers were created. You just open a browser and visit the application via the web host having no need to download anything from anyone provider’s store. Just one simple business transaction from the developer and its over. The only partitions of the subscriptions the developer has to worry about is for owner publishing.

  8. Bill Richards

    Spotify should sue Apple. Apple should not be allowed to get away with charging anyone they please for use of the app store.

    What if Microsoft had done that on the PC and made it impossible to load software without paying Microsoft?

    That would never have been ok.

    Apple DOES NOT CHARGE Facebook nor does it charge GOOGLE anything.

    thats just wrong.

  9. a3sne

    – Apple is not paying for Spotify’s webservers.
    – Apple is not paying for Spotify’s bandwidth and content delivery network.
    – Apple is providing storage and access to Spotify’s app.
    – Spotify already pays Apple for storage and access to their app on a yearly basis(like I do for my apps) with the yearly developer account fee.
    – Apple is demanding their payment gateway is to be used”.”
    – Merchant accounts and Paypal credit card processing averages 2.8%-5% each transaction depending on what credit cards are being processed via your account agreements.
    – If Apple were to argue (and they do) that you are also benefiting from their free marketing and tacted on an additional 5% for say a total of 10% more developers and business’s would find that more reasonable…The fact is they are not explaining were the mythical 20% additional benefit is going too…..
    – If I offer an app for free, have no payments options in the app and rely on advertisement rolls for revenue of video content. Apple does not ask for additional fees other than my developer account fee once per year. So why with adding payment processing(and that is all the difference) do I need to pay them an additional 25% for payment processing when the industry standard is no more than 5%? I’ll tell you why they have a monopoly on this highway which should be reported.

  10. Michiel

    I’m glad I can pay Spotify directly, as I definitely do not want to buy anything from the Appstore at 30% markup. The fact that you can only install apps from one place is quite rediculous to say the least, or the fact that Apple is trying to force iMusic on us. Appleplease start listening to your customers more. Besides that I also have Spotify installed on other devices and even in my car, for what reason does Apple think they need to handle the Spotify payments?

  11. Glyn

    Ok retract the maths, retract the maths. It doesn’t matter how much shareholders etc get if they want to access people on apples platform they should pay the fee not pass it on to its customers who it “loves” and “never wants to change” it’s the same way when they were is beta and when they came out they charged people in the uk more than in other countries when people in the uk downloaded it and told their friends about it making it the product it is today. They shit on their customers. I say keep your service Spotify, you self serving arse holes.