As DOJ Takes on Apple, Netflix and Spotify Could Stand to Benefit

Winston Cho
·7 min read

In September 2019, after years of moves signaling that it was getting serious about Hollywood ambitions, Apple unveiled its foray into entertainment through a subscription video service. A month later, it officially launched its own internal studio, which would feed exclusive content to Apple TV+. The service was offered at an industry-low $5 per month, with some people not having to pay anything as the company gave away a year of TV+ for free to anyone who bought an Apple device.

At the time, observers and analysts across Hollywood likened the strategy to that of Amazon’s Prime Video, which was used to entice consumers to subscribe to Prime. The message was clear: It’s not about the movies or TV shows the tech giants produce; it’s about boosting their core offerings, which in the case of Apple is the iPhone.

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“All of these companies are trying to keep you in their ecosystem for as much time as possible,” said media analyst Rich Greenfield to The Hollywood Reporter in 2019. “If Apple can get people spending hours a week watching its content, they’re going to be more likely to buy its devices.”

On Thursday, the Justice Department filed a landmark antitrust lawsuit against Apple, targeting, in part, its encroachment into Hollywood.

Joined by 16 states and the District of Columbia, the government sued Apple in a lawsuit that argues it violated antitrust laws by wielding a monopoly over the smartphone market with practices meant to keep consumers dependent on iPhones and prevent them from switching to rival devices in ways that may have worsened conditions in the entertainment industry. If left unabated, the government warns the company “poses significant risk” to reduce competition and innovation in areas that include the production and movies and TV shows, pointing to Apple’s “rapidly expanding” role as a producer.

The Tim Cook-led tech monolith has numerous products and services — such as Apple TV+, Apple Music, Apple News and AirPods — through which it can engage in anticompetitive conduct, prosecutors say. Its reach “even affects the flow of speech” as it exerts power over its “role to control content,” the lawsuit alleges.

“Each step in Apple’s course of conduct built and reinforced the moat around its smartphone monopoly,” states the complaint filed in New Jersey federal court.

The Justice Department doesn’t explicitly seek to break up Apple but asks for “relief as needed to cure any anticompetitive harm” which could include the separation of the company’s countless services and products.

“This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets,” Apple said in a statement. “If successful, it would hinder our ability to create the kind of technology people expect from Apple — where hardware, software, and services intersect. It would also set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology.”

After years of regulatory scrutiny, the legal action marks a sweeping challenge to what used to be the world’s most valuable company, which reported annual net revenue of $383 billion and net income of $97 billion last year, that holds the iPhone as the crown jewel in its vast empire. iPhones are the most popular smartphone in the United States, with a 62 percent market share of premium devices that cost over $400, according to data in 2022 from consulting firm Counterpoint. When he testified in an antitrust trial initiated by Epic Games, Cook pegged that figure much lower, in the “high 30s.” The Justice Department says Apple’s market share exceeds 70 percent and is more than 65 percent when measured by revenue.

Hollywood stands at the nexus of the Justice Department’s antitrust claims against Apple. Prosecutors claim the company’s anticompetitive conduct not only limits competition in the smartphone market, but also reverberates through industries affected by those restrictions, including entertainment, social media, gaming and news.

“Unless Apple’s anticompetitive and exclusionary conduct is stopped, it will likely extend and entrench its iPhone monopoly to other markets and parts of the economy,” the complaint states. “For example, Apple is rapidly expanding its influence and growing its power in the automotive, content creation and entertainment, and financial services industries — and often by doing so in exclusionary ways that further reinforce and deepen the competitive moat around the iPhone.”

It’s this “walled garden,” or Apple’s entire ecosystem of products and services that allegedly keep users locked into the iPhone, that the Justice Department targets. Prosecutors allege that the company built and reinforces its monopoly through “switching costs” — in this case, the barriers from switching to an Android device from an iPhone — as seen through its variety of subscription services, including Apple’s proprietary music, news, gaming and cloud storage services, as well as accessories like smartwatches and headphones. If an Apple user can only access their subscription services on an iPhone, the Justice Department explains, they may incur significant costs, time and lost content if they attempt to switch to a non-Apple device.

The “message that can’t be missed is that it is easy to switch from iPhone to Android. Not fun to watch,” wrote an Apple executive to former chief executive Steve Jobs in 2010 about an ad for a Kindle featuring a woman using her iPhone to use the app before switching to an Android smartphone, which also allowed her to continue using the e-reader, in a message cited in the complaint.

Rebecca Allensworth, an antitrust professor at Vanderbilt law school, says, “Anytime you have a monopolist in the media space, you create a possible bottleneck that would affect all people in that market or whatever part of the pipeline they’re in.”

By positioning itself as the middleman or toll booth operator between end users and creators, Apple increased its power over the latter side since it can control how audiences can access their work, the Justice Department alleges. The company exercises this power by extracting “monopoly rents” in several ways, including through app fees and revenue-share requirements, the lawsuit claims.

For nearly 15 years, Apple has collected a tax in the form of a 30 percent commission on the price of apps downloaded from the App Store and on all in-app purchases. It’s able to command these fees from companies across Hollywood that use its in-app payment system to charge users. This has sparked pushback from these firms, some of which depend on subscription revenue to produce content and pay creators. Netflix, which in 2018 ceased allowing customers to subscribe on iOS devices to get around paying the fee, in February told some consumers who still pay monthly fees through the App Store that they will have to add a new payment method to keep their accounts active. In 2022, Spotify put up a brick wall for iPhone users who want to purchase an audiobook from within the app. They were met with the message, “Want to listen? You can’t buy audiobooks in the app. We know, it’s not ideal.” And per other rules, the company, which declined to comment, is barred from linking to discounted rates and methods that would allow it to bypass the fees.

Apple’s cut of payments that go through its in-app payment system was the subject of Epic Games’ antitrust lawsuit against the company, which resulted in a finding that it’s not a monopolist but can’t prevent apps from routing users to alternative payment methods. In response to the court’s order, Apple allows link-outs to websites but now charges for purchase made on the Internet even if they are not an immediate result of a click from a link in a native iPhone app, which the Justice Department argues is further proof of the company’s monopoly power.

The agency states, “Apple takes on outsize importance and control of the creative economy, which may diminish incentives to fund, make and distribute artistic content.”

Another result of Apple’s allegedly anticompetitive conduct may be higher prices for consumers. “Complying with Apple’s terms means that if you’re an independent filmmaker or musician, you’re dealing with a whole lot of platforms, like Spotify,” explains Lee Hepner, a lawyer at the American Economic Liberties Project. “But Spotify is subject to control by Apple on its terms. The most direct consequence of that is that consumers pay more for entertainment because Apple scrapes a larger share of profits in that industry in ways that impact consumers and impact the way that content creators can earn a living and ultimately how companies across the entertainment industry decide what content gets made.”

He stresses, “Apple has created a chokepoint for a number of industries, including entertainment, and unless you play by its rules, you’re not getting your content to market.”

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