This is the third in a series of essays on the FTC’s investigation of Apple Music. In Part II of this series, we demonstrated that, even if Apple were to ban rival music services from offering iOS apps, competition in the smartphone market would significantly mitigate any threat to competition in the music streaming market. This section will ignore this effect and look instead at how Apple’s actual actions, unhindered by consumers’ ability to switch phones, would affect competition in the music streaming market.
Recall from Part I that although Apple imposes several restrictions on rival music streaming services, these restrictions are largely illusory because they apply only to sales made through these services’ iOS apps. Any consumer can bypass them by simply purchasing their subscription through a service’s web site—or, for that matter, any channel other than its iOS app.
As a result, these restrictions should affect only a small subset of music streamers—those who (1) discovered music streaming through a service’s iOS app, (2) rely exclusively on iOS for streaming, and (3) haven’t learned that they can bypass Apple’s restrictions through some other means. In other words, the only consumers who would pay a higher price or be “unfairly” pushed towards Apple Music are those whose sole exposure to music streaming has come through Apple devices. The question, then, is whether Apple should have an advantage among consumers whose sole exposure to music streaming has come through the ecosystem it developed.
But this question is easily answered by examining a simple economic principle—a company that develops an innovative product should be allowed to profit from that product. Without this incentive to innovate, economic growth would slow as companies shift resources away from risky attempts to innovate and towards safer, but potentially less profitable, ventures.
The iPhone was a destructive creation. It radically changed the mobile phone market, in ways that were undoubtedly for the better. But changes like these don’t happen spontaneously; they are the result of a willingness to take risks. Apple has made significant fixed investments—primarily in research and development, capital acquisition, and marketing—not just in developing the original iPhone but also in designing, improving, and producing its subsequent iterations.
Rival services have complained that Apple has an advantage in pursuing this subset of consumers, yet the only reason these rival services are able to pursue these consumers is because of the iPhone, Apple’s invention. Is it not reasonable that Apple have an advantage among consumers whose only connection to music streaming is a device that Apple has spent billions of dollars developing?
Ultimately, this argument is largely unnecessary, because, as discussed in Part II, Apple’s need to compete in the highly competitive market for smartphones mitigates any threat to competition in the music streaming market. It is included only to demonstrate that, even if you reject the argument in Part II, there are benefits to innovation—and, consequently, to future competition—associated with Apple profiting from an advantage in a small subset of the market for music streaming.
This conclusion—that Apple’s actions don’t pose a threat to competition—does not mean that consumers have nothing to protest; in fact, protesting, whether vocally or through decisions about what to purchase, is an integral aspect of a free market. By all means, if you feel Apple’s actions are annoying, unfair, or otherwise unreasonable, consider voting with your wallet and avoiding Apple products. But don’t go to government regulators demanding that they micromanage how Apple manages its ecosystem. Government action—besides being unnecessary—would discourage future innovation and reduce any resultant competitive benefits.
In Part IV of this series, coming soon, we’ll look at what to expect from a legal investigation of Apple’s actions.
The FTC Targets Apple Music