In Response to Questioning, Match and Spotify Testify About Concerns Regarding Retaliation from Google and Apple
WASHINGTON – At today’s Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights hearing on app stores and mobile app competition, U.S. Senator Amy Klobuchar (D-MN) asked witnesses about intimidation in the industry, noting that many companies are unwilling to raise app store competition concerns publicly for fear of retaliation by Apple or Google.
Jared Sine, Chief Legal Officer & Secretary for Match Group, shared that Google contacted Match last night to question the company’s testimony for the hearing. Horacio Gutierrez, Head of Global Affairs & Chief Legal Officer at Spotify, echoed Sine’s sentiment, testifying that Apple threatened to take the company off of their App Store and stop promoting them as a punishment for speaking out about Apple’s monopoly behavior and high fees.
Senator Klobuchar: Thank you very much. That was very powerful, Mr. Sine, as were all the witnesses before us. So let me start out here with you, Mr. Gutierrez. Both Apple and Google charge app developers a 30 to 15 percent commission fee for processing in-app purchases of digital services. Both companies point out that the majority of apps do not pay any payment processing commissions because they are free apps or because they are selling non-digital products or services. But many of those who must pay the commissions find them duly burdensome and I am concerned that these commissions can be used to suppress competition when they raise the costs of app developers that compete with the apps or other products or services offered that are offered by the app store operator. Spotify has raised concerns about the competitive impact about these commission fees. Can you describe the effect of these in-app commission fees, what effects it's had on Spotify’s ability to compete, and can you just pass these fees onto consumers?
Mr. Gutierrez: Thank you, Senator. Thank you for your question. We -- there was a time in which, under pressure from Apple, we had to implement Apple’s in-app payment service and as a consequence had to start paying the 30 percent Apple tax. The consequence of that, in a business like ours where so much of our revenue has to go to pay for the licensing of content from artists and music labels and others, is that in fact, we had no choice but to increase our price to be able to afford the 30 percent tax that Apple was imposing on us. So we had to raise our consumer prices from a monthly subscription of $9.99 to $12.99. Unbeknownst to us as Apple was putting pressure on us to do that, Apple was in the process of acquiring Beats Music, rebranding it as Apple Music, and then just a couple of months after we had to increase prices, Apple launched Apple Music at $9.99, which meant they were now undercutting us on price because we had to pay the 30 percent tax to Apple. So faced with this reality in which Apple was now putting us in this uncompetitive situation from a consumer price perspective, we had no choice but to take the IAP functionality now. What followed after that was a series of steps on the part of Apple threatening us to kick us out of the App store -- just imagine the power of a threat on the part of a platform like Apple to take you out of the App Store, what that might mean for your business -- a number of steps in which they not only said it wasn’t enough for us not to provide a link to a payment mechanism, but we couldn’t even tell users that there was a subscription option and that there were discounts that we were offering that would make the product cheaper. This gag order, in terms of the communication with our own customers, makes it incredibly hard for us to pursue the user of a free app to upgrade to a subscription app which is, frankly, in a premium model like ours how the business can work and how the creators that put their content on our platform can be fairly compensated.
Senator Klobuchar: Alright, so one of the things that I’ve noticed as we’ve talked to people affected by all of this and the commission fees and the like, they’ve come forward, and a lot of them -- I’m not going to give their names publicly because they’re actually afraid to testify, I guess I don’t blame them because they feel it’s going to hurt their business, they are going to get intimidated. You mentioned, Mr. Gutierez, I’m not asking you this question, some of the retaliation you felt you’ve experienced for coming forward. Mr. Sine, have you had any examples of retaliation for coming forward?
Mr. Sine: Senator, we have had outreach with respect to our coming forward, so for sure.
Senator Klobuchar: By who?
Mr. Sine: By Google.
Senator Klobuchar: What happened?
Mr. Sine: They called us last night after our testimony became public to ask us why our testimony was different than what we’d said about the situation in our earnings call earlier this year.
Senator Klobuchar: Is it different?
Mr. Sine: Well, we’d said in our earnings call earlier this year was that we believed we would be able to work through the issue of Google imposing their 30 percent on us, which we’ve been working very hard at over the last few years, meeting with regulators and others, to try and change these practices and ensure this from not happening. Google actually first threatened us in 2017 that they would roll out this in-app payment requirement to us and they’ve slowly, or they’ve slow-rolled that, until they announced it last September.
Senator Klobuchar: And so I’m just picturing this compared to Australia where they threatened to cut off a whole country simply because they wanted to charge for content. And so if you were to somehow keep experiencing retaliation, I would assume there’s a -- I don’t want to keep going into my time, we have several Senators here, three more, another one on the way -- I just want to know, could they hurt you in little ways that it would be really hard to detect?
Mr. Sine: They could hurt us in little ways, they could hurt us in big ways. You know, they could easily remove our app, they could again, as they’re doing, to impose the 30 percent tax that they’d never imposed on us before. There are many, many ways they could hurt our businesses. We’re all afraid is the reality, Senator. We’re fortunate you are listening to us today.
Senator Klobuchar: And I hope that the Justice Department is too. Mr. White, why did someone from your company call Mr. Sine? You know Match is a major competitor here in the market, we all know who they are, why’d they do that last night?
Mr. White: Thank you, Senator, for the question, and not only is Match a competitor, Match is a major partner of ours, a very valued partner of ours. My understanding based on what Mr. Sine said, is it sounds as if some business development folks who were working on our commercial conversations had a conversation and asked an honest question of why sworn testimony was different from what was stated in a public earnings call. I respectfully don’t view that as a threat and we would never threaten our partners, Senator. Having developers choosing to distribute through Google Play is core to our business so the idea that we would threaten partners who actually share in the success that we have as a platform is antithetical -- it's the antithesis of how we carry our business, Senator.
Senator Klobuchar: Okay, my last question, we’ll all have another round, Mr. Andeer, this is about some of the things Ms. Daru talked about. Does Apple’s Developer Agreement authorize Apple to use an app developers’ confidential technical and business information to create apps that compete against the developer?
Mr. Andeer: Senator, no it does not. We compete on the merits and we’ve looked at different products, different markets and we’ve asked ourselves time and time again, what can we do different, what can we bring that’s unique and special to the marketplace, and I think AirTags is one of those products. We think it's a very different product than anything else that’s out there. We are super excited to launch this product tomorrow and I think if you look at it, you’ll see it’s extremely different than anything else in the marketplace. We are doing it at the same time as opening up the Find My marketplace so we can see third party innovation grow. I mean currently this market is dominated by Tile with 80 to 90 percent of the market so we think we’re going to see a lot more competition, thanks in part to the product that we’re launching tomorrow but also importantly by opening the Find My network to all the third parties that are out there and are really excited to bring products to the market.
Senator Klobuchar: And do you use any non-public information or data from the app store? Did you copy anything from Tile?
Mr. Andeer: Senator, appreciate the question, absolutely not. We did not copy Tile’s product. We did not copy Tile’s application, and I think if you look at the AirTags that will be released tomorrow, if you look at the Find My application, you’ll see this is a very different product, a very different experience than what you see with Tile and we’re excited to compete and offer that choice to our consumers.
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