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A member of the Senate Intelligence Committee is pushing Apple and Google to remove TikTok from their app stores because of national security concerns as the Chinese-owned company faces escalating prospects of a national ban amid bipartisan scrutiny of its data-sharing practices.
In a letter addressed to the chief executives of Apple and Alphabet, Sen. Michael Bennet, D-Colo. says TikTok’s popularity “raises the obvious risk that the Chinese Communist Party could weaponize TikTok against the United States” by forcing parent company ByteDance to “surrender Americans’ sensitive data or manipulate the content Americans receive to advance China’s interests.”
The government has increasingly been taking action against TikTok’s ties to China. In December, President Joe Biden signed a bill prohibiting the use of TikTok by nearly four million government employees on devices owned by its agencies. At least 27 state governments have passed similar measures.
There’s no evidence that the Chinese government has demanded American user data from TikTok or its parent company or influenced the content users see on the platform.
In a statement, TikTok said that the Bennet “relies almost exclusively on misleading reporting about TikTok, the data we collect, and our data security controls.” It added that the letter ignored its investment in a plan, known as Project Texas, to “provide additional assurances to our community about their data security and the integrity of the TikTok platform.”
Mirroring concerns made in a letter from a Federal Communications commissioner to Apple and Google in June, Bennett stresses TikTok’s data harvesting practices. He says its reach “allows it to amass extensive data on the American people, including device information, search and viewing history, message content, IP addresses, faceprints and voiceprints.” Unlike other tech companies that harvest similar data, he claims TikTok “poses a unique concern” because its obligated under Chinese law to cooperate with state intelligence work.
TikTok has over 100 million active users. Roughly 36 percent of Americans over 12 use the platform, spending over 80 minutes per day on the app — more than Facebook and Instagram combined. In November, TikTok confirmed that China-based employees could gain remote access to European user data. Reporting by BuzzFeed News has also revealed that company employees in China had access to US user data.
The data TikTok collects can be leveraged by the Chinese government to advance Chinese interests, according to the letter. It may be forced, for example, to tweak its algorithm to boost content that undermines U.S. democratic institutions or “muffle criticisms of CCP policy toward Hong Kong, Taiwan, or its Uighur population.”
According to Pew survey in 2022, a third of TikTok’s adult users report that they regularly access news from the app. Forbes has reported on the ability of TikTok staff to “secretly handpick videos and supercharge their distribution, using a practice known internally as heating.”
To curb criticism of its data-sharing practices, TikTok has announced a partnership with Oracle to move its data on U.S. users stored on foreign servers to Texas. The project also includes audits of its algorithms and creating a subsidiary called TikTok US Data Security to oversee content moderation policies and approve editorial decisions. U.S. employees will report to an independent board of directors.
The US Committee on Foreign Investment, which reviews business dealing that may be a threat to national sceurity, is reviewing ByteDance’s 2017 merger of TikTok and Musical.ly. It may force TikTok to sell to a US company, harkening back to when former President Donald Trump issued in 2020 an executive order demanding ByteDance to divest ownership of the app (the order was blocked by a federal court). Scrutiny of TikTok quieted when Biden took office, but the company continued to run into legal trouble over data-sharing practices. In 2021, TikTok agreed to pay $92 million to settle lawsuits alleging that the app clandestinely transferred to servers in China vast quantities of user data on children.
Anupam Chander, a professor of law and technology at Georgetown University who was briefed by TikTok about Project Texas, says the U.S. banning TikTok may “embolden other governments to do the same to apps and services from the U.S.” He adds, “It’s not clear to me that anything short of a sale will satisfy TikTok’s critics.”
TikTok’s chief executive Shou Zi Chew will appear before a House committee in March.
This article originally appeared in THR.com.
The Justice Department and eight states sued Google on Tuesday, alleging that its dominance in digital advertising harms competition as well as consumers and advertisers — including the U.S. government.
The government alleges that Google’s plan to assert dominance has been to “neutralize or eliminate” rivals through acquisitions and to force advertisers to use its products by making it difficult to use competitors’ products.
The antitrust suit was filed in federal court in Alexandria, Virginia. Attorney General Merrick Garland said in a press conference Tuesday that Google’s dominance in the ad market means fewer publishers are able to offer their products without charging subscription or other fees, because they can’t rely on competition in the advertising market to keep ad prices low.
As a result of Google’s dominance, he said, “website creators earn less and advertisers pay more.”
The department’s suit accuses Google of unlawfully monopolizing the way ads are served online by excluding competitors. This includes its 2008 acquisition of DoubleClick, a dominant ad server, and subsequent rollout of technology that locks in the split-second bidding process for ads that get served on Web pages.
Google’s ad manager lets large publishers who have significant direct sales manage their advertisements. The ad exchange, meanwhile, is a real-time marketplace to buy and sell online display ads.
The lawsuit demands that Google break off three different businesses from its core business of search, YouTube and other products such as Gmail: the buying and selling of ads and ownership of the exchange where that business is transacted.
Garland said that “for 15 years, Google has pursued a course of anti-competitive conduct” that has halted the rise of rival technologies and manipulated the mechanics of online ad auctions to force advertisers and publishers to use its tools.
In so doing, he added, “Google has engaged in exclusionary conduct” that has “severely weakened,” if not destroyed competition in the ad tech industry.
Alphabet Inc., Google’s parent company, said in a statement that the suit “doubles down on a flawed argument that would slow innovation, raise advertising fees, and make it harder for thousands of small businesses and publishers to grow.”
Dina Srinivasan, a Yale University fellow and adtech expert, said the lawsuit is “huge” because it aligns the entire nation — state and federal governments — in a bipartisan legal offensive against Google.
This is the latest legal action taken against Google by either the Justice Department or local state governments. In October 2020, for instance, the Trump administration and eleven state attorneys general sued Google for violating antitrust laws, alleging anticompetitive practices in the search and search advertising markets.
The lawsuit in essence aligns the Biden administration and new states with the 35 states and District of Colombia that sued Google in December 2020 over the exact same issues.
The states taking part in the suit include California, Virginia, Connecticut, Colorado, New Jersey, New York, Rhode Island and Tennessee.
Google is laying off 12,000 workers, or about 6% of its workforce, becoming the latest tech company to trim staff as the economic boom that the industry rode during the COVID-19 pandemic ebbs.
Alphabet CEO Sundar Pichai, the parent company of Google, informed staff Friday at the Silicon Valley giant about the cuts in an email that was also posted on the company’s news blog.
It’s one of the company’s biggest-ever round of layoffs and adds to tens of thousands of other job losses recently announced by Microsoft, Amazon, Facebook parent Meta and other tech companies as they tighten their belts amid a darkening outlook for the industry. Just this month, there have been at least 48,000 job cuts announced by major companies in the sector.
“Over the past two years we’ve seen periods of dramatic growth,” Pichai wrote. “To match and fuel that growth, we hired for a different economic reality than the one we face today.”
He said the layoffs reflect a “rigorous review” carried out by Google of its operations.
The jobs being eliminated “cut across Alphabet, product areas, functions, levels and regions,” Pichai said. He said he was “deeply sorry” for the layoffs.
Regulatory filings illustrate how Google’s workforce swelled during the pandemic, ballooning to nearly 187,000 people by late last year from 119,000 at the end of 2019.
Pichai said that Google, founded nearly a quarter of a century ago, was “bound to go through difficult economic cycles.”
“These are important moments to sharpen our focus, reengineer our cost base, and direct our talent and capital to our highest priorities,” he wrote.
There will be job cuts in the U.S. and in other unspecified countries, according to Pichai’s letter.
The tech industry has been forced to freeze hiring and cut jobs “as the clock has struck midnight on hyper growth and digital advertising headwinds are on the horizon,” Wedbush Securities analysts Dan Ives, Taz Koujalgi and John Katsingris wrote Friday.
Just this week, Microsoft announced 10,000 job cuts, or nearly 5% of its workforce. Amazon said this month its cutting 18,000 jobs, although that’s a fraction of its 1.5 million strong workforce, while business software maker Salesforce is laying off about 8,000 employees, or 10% of the total. Last fall Facebook parent Meta announced it would shed 11,000 positions, or 13% of its workers. Elon Musk slashed jobs at Twitter after after he acquired the social media company last fall.
Those job cuts are hitting smaller players as well. U.K.-based cybersecurity firm Sophos laid off 450 employees, or 10% of its global workforce. Cryptocurrency trading platform Coinbase cut 20% of its workforce, about 950 jobs, in its second round of layoffs in less than a year.
“The stage is being set: tech names across the board are cutting costs to preserve margins and get leaner” in the current economic climate, the Wedbush analysts said.
Employment in the U.S. has been resilient despite signs of a slowing economy, and there were another 223,000 jobs added in December. Yet the tech sector grew exceptionally fast over the last several years due to increased demand as employees began to work remotely.
CEOs of a number of companies have taken blame for growing too fast, yet those same companies, even after the latest round of job cuts, remain much larger than they were before the economic boom from the pandemic began.
This is The Legal Beat, a weekly newsletter about music law from Billboard Pro, offering you a one-stop cheat sheet of big new cases, important rulings, and all the fun stuff in between. This week: Taylor Swift ends a long-running copyright case over the lyrics to “Shake It Off,” Tory Lanez heads to trial over accusations that he shot Megan Thee Stallion, Backstreet Boys member Nick Carter is accused of sexually assault, and much more.
THE BIG STORY: Taylor Swift’s Accusers Drop “Shake It Off” Case
It was the next big music copyright case – until it wasn’t.After five long years of litigation, and with just a month to go until a scheduled trial, attorneys for Taylor Swift reached an agreement Monday with songwriters Sean Hall and Nathan Butler to end their copyright infringement lawsuit claiming the superstar stole some of the core lyrics to “Shake It Off” from an earlier song.The terms of the agreement were not publicly released. Billboard was first to report the settlement.Hall and Butler sued Swift way back in 2017, claiming she’d lifted the lyrics from “Playas Gon’ Play,” a 2001 song they wrote for the R&B group 3LW. In that song, the line was “playas, they gonna play, and haters, they gonna hate”; in Swift’s track, she sings, “‘Cause the players gonna play, play, play, play, play and the haters gonna hate, hate, hate, hate, hate.” (The music itself was not in play.)The case was a big deal, if for no other reason than that “Shake It Off” was a big deal. Released in September 2014 off of Swift’s 1989, the song debuted at No. 1 on the Billboard Hot 100 and ultimately spent 50 weeks on the chart, making it a uniquely major hit even for one of music’s top stars.But it was also a big deal because of the legal issues at play. Like the earlier battles over Robin Thicke’s “Blurred Lines,” Led Zeppelin’s “Stairway to Heaven” and Katy Perry’s “Dark Horse,” the case posed fundamental questions about the limits of copyright law — about where protection ends and the public domain begins. That question was explored in regard to various musical elements in those earlier cases; the “Shake It Off” case might have offered answers in relation to lyrics.Put simply: The words in both songs were clearly similar — everyone can see that. But were they creative or unique enough in the first place to merit giving particular songwriters a decades-long legal monopoly over them? Experts who chatted with Billboard thought the answer was no.But we’ll never know for sure. Swift’s lawyers spent years trying to make that case, arguing that many earlier songs (1997’s “Playa Hater” by Notorious B.I.G. and 1999’s “Don’t Hate the Player” by Ice-T, among others) had used the same words. A judge initially agreed, ruling that the lyrics were not novel enough for copyright protection. But a federal appeals court later overturned that ruling, and the last substantive decision in the case was a ruling last year that the question was simply too close to call and would need to be decided by a jury.With the “Shake It Off” case now officially in the rearview, what’s the next big music copyright case? Maybe it’s the lawsuits against Ed Sheeran over allegations that his “Thinking Out Loud” infringed Marvin Gaye’s “Let’s Get It On.” Or the dueling cases against Dua Lipa over her own mega-smash “Levitating.” Or maybe it’s something that hasn’t even been filed yet…
THE OTHER BIG STORY: Megan Thee Stallion Shooting Trial Begins
Tory Lanez and Los Angeles prosecutors headed to court this week to kick off a closely-watched jury trial over whether he shot Megan Thee Stallion in the foot, with a potential 22-year prison sentence looming for Lanez if convicted.The trial, set to last for at least a week, will center on the early morning of July 12, 2020, when Stallion, Lanez and Stallion’s friend Kelsey Harris were driving in an SUV following a party at Kylie Jenner’s house. According to prosecutors, after an argument broke out, Megan got out of the vehicle and began walking away, when Lanez shouted, “Dance, bitch!” and began shooting at her feet.Lanez (real name Daystar Peterson) has pleaded not guilty to all three charges (assault with a firearm, gun possession and discharging a firearm with gross negligence) and has steadfastly maintained his innocence.The upcoming trial will feature testimony from a number of high-profile witnesses, including Stallion herself and Harris. Also potentially taking the stand are Jenner and Corey Gamble, Kris Jenner’s boyfriend who was allegedly at the party. Lanez might also testify, but putting a defendant on the stand is always a gamble for defense attorneys.Billboard’s Heran Mamo will be in the building covering the trial all week, and she was there Monday (Dec. 13) when the case kicked off with opening statements. Some highlights from Day One:-Prosecutors have assembled a formidable case. They told jurors that Harris plans to testify that “her close friend was shot by the defendant,” and that they have texts from Harris just minutes after the shooting: “Help. Tory shot meg. 911.”-Lanez’s attorneys will present the theory that Harris may have actually been the one who discharged the gun. Lead attorney George Mgdesyan told jurors that “this case is about jealousy,” involving a love triangle between the three celebrities, and that there would be witness testimony about “a fist fight between the girls” leading up to the shooting.Stallion herself is set to testify on Tuesday, so check back in with Billboard for Heran’s dispatch…
Other top stories this week…
NICK CARTER SUED FOR RAPE – Backstreet Boys member Nick Carter was hit with a lawsuit alleging that he raped a 17-year-old fan on his tour bus following a 2001 concert in Washington. Shannon “Shay” Ruth claims that Carter invited her onboard as she sought an autograph, gave her alcohol, and then repeatedly assaulted her — but that she didn’t report it because he told her she would “go to jail if she told anyone what happened between them.” In response to the lawsuit, Carter’s attorney called the allegations “legally meritless” and “entirely untrue,” filed by someone “manipulated into making false allegations about Nick.”50 CENT ‘INSINUATION’ SUIT MOVES AHEAD – A federal judge refused to dismiss a lawsuit filed by 50 Cent that accuses a Miami medical spa of using an innocent photo he snapped to falsely suggest that he’d had penis enhancement surgery. In seeking to boot the case, Angela Kogan and her Perfection Plastic Surgery & MedSpa argued that 50 actually was a client and had consented to the use of the image as payment for the work he received. But the judge said such arguments were premature — and that some of the company’s other defenses were “simply wrong.”OFT-SAMPLED, NOW INFRINGED? Roddy Ricch was sued for copyright infringement by songwriter Greg Perry, who says elements of Ricch’s chart-topping 2019 song “The Box” were lifted from a 1975 soul song called “Come On Down.” Perry says his track has become something of a mainstay sample in the world of hip-hop, featured in both Young Jeezy’s 2008 song “Wordplay” and in Yo Gotti’s 2016 song “I Remember.” But he says those earlier songs were fully licensed, unlike Ricch’s: “Other [artists] in the rap world that have chosen to copy elements of ‘Come On Down’ have done so legally and correctly,” Perry’s lawyers wrote. “Defendants chose not to.”BORED APE LAWSUIT CLUB – Justin Bieber, Snoop Dogg, The Weeknd and dozens of other celebrities were hit with a class action alleging they were secretly paid to “misleadingly” promote NFTs like the Bored Ape Yacht Club, leaving investors with “staggering losses.” The case claims that Bored Ape parent company Yuga Labs Inc. perpetrated a “vast scheme” in which they “discreetly” paid “highly influential celebrities” to pump up the value of the NFTs (non-fungible tokens). In response to the lawsuit, Yuga called the allegations “opportunistic and parasitic” and “without merit.”GENIUS V. GOOGLE AT SCOTUS – The Supreme Court suggested this week that it might be interested in tackling a lawsuit filed by the music database Genius against Google. The case, which claims Google illegally copied the site’s lyrics and posted them in search results, was dismissed in March. But with Genius currently asking the high court to hear the case, the justices asked the U.S. Solicitor General to file briefs “expressing the views of the United States” on whether it should do so. Genius has warned that the ruling in favor of Google threatens “a vast swath of internet businesses”; Google says that’s just “alarmist hyperbole” and the case does not deserve the high court’s time.
The U.S. Supreme Court looks like it might be about to jump into a lawsuit filed by the music database Genius that accuses Google of illegally copying the site’s lyrics and posting them in search results.
After a lower court dismissed the case in March, Genius – a platform that lets users add and annotate lyrics – asked the high court to hear the case and overturn the ruling. Though it called the ruling “unjust” and “absurd,” such petitions are always a long shot; the Supreme Court takes less than 2% of the 7000 cases it receives each year.
But the odds for Genius just got better. In an order Monday, the justices asked the U.S. Solicitor General to file briefs in the case “expressing the views of the United States” on whether or not the court should hear the case against Google.
That kind of request (a “call for the view of the Solicitor General,” or CVSG, in SCOTUS parlance) indicates that the justices think the issues in the case might be significant enough for the court to tackle. Genius has warned that the ruling for Google threatens “a vast swath of internet businesses”; Google says that’s “alarmist hyperbole” and the case does not deserve the high court’s time.
Neither Genius nor Google immediately returned requests for comment on Tuesday.
Genius sued the tech giant in 2019, claiming Google had stolen the site’s carefully-transcribed content for its own “information boxes” in search results, essentially free-riding on the “time, labor, systems and resources” that goes into creating such a service. In a splashy twist, Genius said it had used a secret code buried within lyrics that spelled out REDHANDED to prove Google’s wrongdoing.
Though it sounds like a copyright case, Genius didn’t actually accuse Google of stealing any intellectual property. That’s because it doesn’t own any; songwriters and publishers own the rights to lyrics, and both Google and Genius pay for the same licenses to display them. Instead, Genius argued it had spent time and money transcribing and compiling “authoritative” versions of lyrics, and that Google had breached the site’s terms of service by “exploiting” them without permission.
But in March, that distinction proved fatal for Genius. The U.S. Court of Appeals for the Second Circuit dismissed the case, ruling that only the actual copyright owners – songwriters or publishers – could have filed such a case, not a site that merely transcribed the lyrics. In technical terms, the court said the case was “preempted” by federal copyright law, meaning that the accusations from Genius were so similar to a copyright claim that they could only have been filed that way.
In taking the case to the Supreme Court in August, Genius argued the ruling would be a disaster for websites that spend time and money to aggregate user-generated content online. Such companies should be allowed to protect that effort against clear copycats, the company said, even if they don’t hold copyrights.
“It serves no public purpose … to bar these companies from enforcing their contracts so that behemoths like Google can vacuum up content and increase their internet dominance,” Genius wrote. “Big-tech companies like Google don’t need any assists from an overly broad view of copyright preemption; they already control vast swaths of the internet, to the public’s detriment.”
Google obviously disagrees. In a response to the Supreme Court, the company urged the justices to avoid the case and reject Genius’s “alarmist hyperbole,” arguing that the lower ruling was “plainly correct.” Google said Genius was trying to use an agreement “inconspicuously tucked behind a tiny link” to create “pseudo-copyright” control over songs written by other people.
“Genius does not own the copyrights to any of the lyrics. Genius nevertheless wants to prevent any website visitor from reproducing or publicly displaying the lyrics,” Google’s lawyers wrote. “Its solution? Ignore the true copyright owners and invent new rights through a purported contract.”
Google released its Year in Search for 2022 on Wednesday (Dec. 7), and the trends in the United States throughout the year paint a picture of the most popular stories, songs and events of the year.
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The top musician that was searched on Google this year was Adam Levine, most likely in connection to his alleged affair with Instagram model Sumner Stroh that made waves throughout the Internet back in September. Following Levine, Mary J. Blige, Lil Tjay, Kendrick Lamar and Migos wrap up the top five.
For people in general, Johnny Depp and Amber Heard both made the top five, as their defamation trial was made available for the public to livestream throughout the spring. Will Smith was also in the top five searched people, as a result of his headline-making incident at the 2022 Academy Awards, during which he stormed the stage and slapped Chris Rock across the face.
As far as songs, the Encanto hit, “We Don’t Talk About Bruno” topped the list. The film’s “Surface Pressure” followed, and the TikTok-viral track “Jiggle Jiggle” by Duke & Jones and Louis Theroux. Rounding out the top five are Sam Smith and Kim Petras’ collaboration, “Unholy,” and Harry Styles’ Harry’s House smash, “As It Was.”
“We Don’t Talk About Bruno” also came in at No. 3 on the year’s top trends on Google’s “Hum to Search” feature. The top song on that list was Backstreet Boys’ “Everybody (Backstreets Back),” followed by “Never Gonna Give You Up” by Rick Astley.
See Google’s full Year in Search 2022 report here.
YouTube is reportedly working to remove reuploaded video clips of Kanye “Ye” West‘s controversial interview on Alex Jones’ Infowars talk show.
During his appearance Thursday (Dec. 1) on the alt-right conspiracy theorist’s program, Ye shocked viewers by praising Adolf Hitler and the Nazis. “Every human being has something of value that they brought to the table, especially Hitler,” the rapper said. “How about that one?”
Later in the day, Ye was also suspended once again from Twitter after posting an image of a swastika merged with a Star of David.
NBC News reported on Saturday (Dec. 3) that YouTube parent company Google was “working to remove reuploads if the antisemitism in the interview isn’t denounced in the video via added commentary,” according to a statement from the tech giant.
The article also pointed out that other social media platforms, like Twitter, had not yet stated how it would addressed the matter.
Billboard has reached out to representatives for Google/YouTube and Jones’ Infowars for comment.
Ye has been on a monthlong media tour that has found the rapper repeatedly spewing hateful rhetoric aimed at Jewish people, which has led to rapid downfall of his once-formidable fashion and music empire. The reaction from the public was swift, with several companies — including The Gap, Balenciaga and Adidas — terminating their relationships and brand deals with the rapper.
Ye also announced in recent weeks that he intends to run for president again in 2024.
Spotify’s quest to improve its margins has taken another step forward, as a pilot program for billing subscribers using Google devices expands to the U.S. and additional markets. Called “user choice billing,” the system allows app developers to provide Google Android smartphone users with the option of paying the developer directly — at a reduced fee — or through Google Play.
Last week, Google’s user choice billing pilot expanded to the U.S., Brazil and South Africa, and Google announced that dating app Bumble also joined the program. Spotify was the first developer to join the pilot program in March with test markets of Australia, India, Indonesia, Japan and the European Economic Area. With the additional markets, user choice billing will be tested in most of the world’s largest smartphone markets and most valuable music markets.
With user choice billing, prospective Spotify subscribers are presented with two payment options side-by-side in an Android app: Spotify and Google Play. Choosing Spotify will take the user to a form to fill out credit card information to sign up for a subscription. Importantly, it all happens within the Spotify app, not Spotify’s external website. Choosing to pay with Google Play prompts the user to enter a password to pay with the credit card on file with Google.
Billing is an under-appreciated but important issue in the subscription music business. Because music streaming is inexorably tied to smartphones, and because consumers have come to expect simplicity when engaging in e-commerce on smartphones, in-app billing helps a company like Spotify sign up subscribers. The problem for a music service like Spotify operating on thin margins, though, is that app stores run by Apple and Google have traditionally demanded a cut of these in-app purchases. That’s left music companies either paying the app store fees themselves, without raising prices, eroding each subscription’s profitability, or raising the price to compensate for the fee, which could turn away potential subscribers. Prior to 2016, Spotify charged users 30% more for an in-app upgrade to Premium to offset Apple’s 30% fee.
There’s one other option, of course: To save on fees, a music service may disallow in-app subscriptions and encourage a customer to take a few extra steps and subscribe at its website. That process risks losing potential subscribers along the way, but nevertheless, Spotify has gone this route and not allowed in-app purchasing on its Apple app since 2016.
Companies have faced this quandary for years. In 2019, for example, Pandora raised the price for subscribers who used Apple’s in-app purchasing premium subscription service from $9.99 to $12.99 to offset the fees. Pandora reported paying $50 million in fees to Apple and Google in 2015 – 3.7% of its annual revenue.
“It certainly puts independent music services at a disadvantage where we’re paying 30% of the economics out to the platforms that distribute our apps, who also happen to be competing with us, and for the same users, and the same economics,” Pandora’s then-CFO Mike Herring told investors in 2016.
Apple typically charges a 30% fee for in-app purchases during the first year of a subscription and 15% thereafter, according to Apple’s website for developers. Neither Apple nor Spotify have said publicly what fees are paid for Spotify subscriptions. The fees that Spotify pays Google are also private.
“We’re not going to comment on the terms of our agreement with Google because they are confidential,” a Spotify spokesperson tells Billboard, “but it’s safe to say that our [user choice billing] partnership is based on commercial terms that meet our standards of fairness.”
Generally, subscription services such as Spotify pay a 15% fee for in-app purchases, but the fee can go lower. App developers in Google’s Play Media Experience Program, which integrates apps into Google’s ecosystem of wearables and other hardware products, can pay less than 15%, for example. For subscription-based services with significant licensing costs — such as music, video, books and audiobooks — fees “can be as low as 10%,” according to a Google spokesperson.
User choice billing provides additional savings for app developers on top of any other program or discount. If an Android user presented with user choice billing opts for the app developer’s payment system, Google lowers the fee by 4%. So, if an app developer were paying a 10% fee to Google, user choice billing would reduce the fee to 6%.
Small improvements to gross margin are crucial to a music service that pays more than three-quarters of its revenue to rights holders. Spotify’s gross margin on its Premium subscription service was 28% in the third quarter of 2022, meaning that Spotify paid out 72% of its subscription revenue for licensing fees and some smaller costs of sales. Every percentage point of revenue represents about $100 million in subscription revenue in 2022, based on past earnings and Spotify’s fourth-quarter guidance. If Spotify can move its gross margin by a small amount, it would greatly impact the company’s free cash flow. To put it in perspective, Spotify’s net cash flow from operations for the first three quarters of 2022 was $109 million.
While Google seems willing to consider alternative approaches to in-app billing, Apple does not. Prominent app developers, including Spotify, have been fighting for better terms for years. In 2019, Spotify filed a complaint against Apple with the European Commission for anticompetitive behavior alleging that Apple “continue to give themselves an unfair advantage at every turn.”
Additionally, Apple is currently involved in a lawsuit brought by Epic Games regarding its control over the App Store. Although the judge in the case has mostly sided with Apple, the judge did order Apple to allow apps to provide links to payment alternatives outside the App Store. The lower court’s requirement has been delayed until the appeals court rules on the case. The two sides began oral arguments in the Ninth Circuit Court of Appeals on Monday (Nov. 14).
Apple’s strict rules are particularly meddlesome to Spotify’s latest attempt to improve its margins — audiobooks. In September, the streaming service began selling 300,000 audiobook titles following its acquisition of audiobook distributor Findaway in June. The plan makes sense: Audiobook purchases on its platform can provide Spotify with 60% gross margins — about twice the margin in music streaming – and audiobooks are a natural addition to its burgeoning podcast business.
But Apple’s rules for in-app purchases would make audiobooks purchased through an iOS app far less profitable — and a less straightforward process. Whereas the Google app provides “a beautiful experience,” CEO Daniel Ek said during the Oct. 25 earnings call, the process of buying an audiobook through Apple “is inherently broken because Apple decided it wanted it to be broken.” Spotify had lawyers “in the room” working with developers, but Apple rejected Spotify’s app multiple times, according to Ek. “It holds developers back and holds creators back,” he said. “And it’s bad for consumers.” Plus, there’s the added element here that Apple happens to be Spotify’s leading competitor for music streaming.
With audiobooks, Spotify currently sells titles on its website rather than inside the app to avoid fees (the user can listen using the Spotify app after the title is purchased). But just getting people to its website isn’t straightforward. As Spotify claimed on a website called Time to Play Fair, Apple does not allow Spotify to explain how to purchase an audiobook outside of the app, include a link to direct the user to a Spotify audiobook page, request or receive an email with instructions on how to purchase an audiobook or reveal an audiobook’s price in the app or in an email. Spotify’s Android app does not sell audiobooks, but the app allows users to receive an email with a link to Spotify to purchase a title.
In its June investors’ day presentation, Spotify management looked beyond music, podcasts and audiobooks. In the next ten years, Spotify will add sports, news and education to the platform and double the current average revenue per user, said Gustav Norström, chief freemium business officer. The user choice billing pilot program can only help with that goal.