Remember a few years ago when Apple got in trouble for conspiring with book publishers to raise ebook prices to hurt Amazon and the public? Apparently the company hasn’t learned very much. Today comes a report from the Verge, claiming that the DOJ is now investigating Apple for conspiring with the major record labels to get them to kill off Spotify’s free tier, in an effort to better promote its own Beats Music service, which has no free tier.
Apple has been using its considerable power in the music industry to stop the music labels from renewing Spotify’s license to stream music through its free tier. Spotify currently has 60 million listeners, but only 15 million of them are paid users. Getting the music labels to kill the freemium tiers from Spotify and others could put Apple in prime position to grab a large swath of new users when it launches its own streaming service, which is widely expected to feature a considerable amount of exclusive content. “All the way up to Tim Cook, these guys are cutthroat,” one music industry source said.
And it’s not just Spotify. Apparently, Apple was trying to get labels to pull music from YouTube too:
Sources also indicated that Apple offered to pay YouTube’s music licensing fee to Universal Music Group if the label stopped allowing its songs on YouTube. Apple is seemingly trying to clear a path before its streaming service launches, which is expected to debut at WWDC in June. If Apple convinces the labels to stop licensing freemium services from Spotify and YouTube, it could take out a significant portion of business from its two largest music competitors.
This is fascinating for a few reasons, even beyond Apple’s antitrust troubles over ebooks. In fact, there’s some history here as well. A few years ago, there was an investigation, after Apple tried to pressure the labels into killing off daily deals that they were offering to Amazon, as it harmed Apple’s iTunes business.
And, of course, there’s the long history of the labels’ relationship with Apple for much of the first decade of the millennium. Almost exactly a decade ago, we wrote about how the music labels all resented Apple because it had become such a dominant force in music with iTunes and the iPod (this was pre-iPhone) and had (for a while, at least) blocked the labels from trying to raise the price of single tracks beyond the original $0.99 price point. Of course, it’s quite a sign of how the online music industry has shifted from downloads to streaming that those labels are apparently now working with Apple to focus on trying to stop competitors like Spotify and YouTube.
Just a month or so ago, we noted that there had been a series of articles claiming that the labels themselves were conspiring to put an end to free tiers on Spotify and other services, and we pointed out how stupid this was (mainly in the context of Jay-Z’s new “Tidal” service). Bringing Apple into the game as well just makes the whole thing that much more ridiculous.
Rather than trying to build a better experience for users and give them more value, it appears that the labels and Apples are looking to decrease the value of competitors through coordinated action. It really says something — and not something good — when a company thinks the only way to compete in the market place is to kneecap competitors rather than build a better service itself. Competition has shown that great services can be built when they actually do focus on what consumers want. And there’s still a long way to go. Spotify still has significant problems, but it’s pretty good right now. It’s astounding that Apple and the labels think that the right solution is not to build an even better product, but rather to make everyone else’s products worse. Once again, it makes you wonder if they actually want to drive consumers back to completely unauthorized services.
And here’s the thing that’s really bizarre: why should Apple care about this at all? Apple is a hardware business. Even when iTunes was dominant, people at Apple would quietly admit that it was considered a “loss leader” or maybe a “breakeven leader” with the focus on selling more hardware. The same should be true of a streaming music service. Beats can make iPhones even more valuable — and one way to do that is by offering a free streaming tier. Why Apple wants to take away its own value seems like a strategic error all around — not just for consumers and competitors, but for itself as well.