Analysis-Apple’s App Store concessions fail to address top concerns of regulators, lawmakers

September 3, 2021

By Stephen Nellis

(Reuters) – In the space of a week, Apple Inc made two sets of changes to its App Store rules, which are the subject of lawsuits, regulatory probes and legislation around the world, but the tweaks do not address the biggest concerns raised.

Lawmakers and regulators are considering dismantling the App Store business model, an outcome that could cost Apple about 6% of its sales – an amount equal to $16 billion in its last fiscal year – and shave up to 15% off its profit, according to an estimate last year from analyst firm Cowen.

Among Apple’s most high-profile concessions is allowing Netflix Inc and other subscription services to provide a link to out-of-app paid signups that avoid Apple commissions. But many of the largest such companies had already quit using Apple’s payment systems long ago, so the move is unlikely to affect Apple’s finances.

That is a sign that any fight over Apple’s rules will likely continue even if Apple wins in the threat closest to hand – a U.S. federal judge who is due any day to announce a ruling in an antitrust case brought by “Fortnite” game maker Epic Games.

“Mobile technologies have become essential to our daily lives, and now just two app stores wield incredible power over which apps consumers can access and how they access them,” U.S. Senator Amy Klobuchar, a Democrat who sponsored an app store bill, said this week. “When you see this same issue arising all over the world, it is even more obvious that we need to take action.”

Some of the loudest cries are for Apple to allow app stores run by other companies on its iPhone, which would provide a path around the current payments system that gives developers little ability to avoid giving Apple a cut. Critics also want the company to abolish so-called steering rules that stop developers from telling their customers how to pay developers directly for their apps.

Developers could sidestep Apple’s rules altogether if they were allowed to install software on iPhones without going through Apple’s App Store, but Apple disallows this, saying it imperils the safety of its users. Epic seeks that change in the “Fortnite” antitrust case.

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A bill introduced by Democratic U.S. Representative David Cicilline and Republican Representative Ken Buck in the U.S. House of Representatives in June would also force Apple to open its iPhone to third-party stores if the measure becomes law.

Virtually every regulator examining Apple around the world – including competition authorities in the United Kingdom, the European Union and Australia – is scrutinizing Apple’s rules for in-app payments and commissions on digital goods of 15-30%. It is also key to the legal complaints filed by Spotify Technology and Epic against Apple.

South Korean lawmakers this week passed a bill that would prohibit both Apple and Alphabet Inc’s Google from requiring use of their payment systems.

That is at the top of a wish list by Spotify, whose CEO, Daniel Ek, tweeted that Apple’s changes to date “don’t solve the problem.”

The issue of “steering rules” was partly addressed by Apple last week when it ended a ban on communicating with users by email about alternative payments and this week said that a small sliver of “reader” apps that access media content purchased elsewhere can now provide a link to paid sign up page.

But game developers who generate most of Apple’s App Store revenue still cannot point their users to a paid signup page or otherwise direct them to make payments that avoid Apple’s commissions.

“Apple’s latest announcement seems to be another attempt to protect their App Store monopoly by dividing developers into winners and losers,” said a statement from the Coalition for App Fairness, a group that includes Epic Games.

(Reporting by Stephen Nellis in San Francisco; Editing by Peter Henderson and Matthew Lewis)

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