Reports that Apple is starting a new streaming music service sent Pandora’s stock price tumbling Monday and sparked talk that Apple may be regaining its footing after several difficult months. But experts say there is at least one potential obstacle ahead for the company — federal antitrust laws.
Apple’s iTunes is the leading seller of digital music, with estimates of its market share running above 60 percent. That means regulators are likely to monitor any move into a related business to ensure that the company isn’t improperly using its muscle to squeeze out competitors, which could lead to higher prices for consumers, say experts in antitrust law.
Simply creating a new music streaming service — even if it posed a serious threat to Pandora, Spotify or any similar company — would not be enough to put Apple in legal jeopardy. U.S. antitrust law is designed to protect consumers, not competitors. More choice, especially when offered by a respected company such as Apple, is likely to please many consumers.
Yet size can generate unwanted federal government attention, as Google, Microsoft and other technology companies have discovered. Experts say there are elements of a potential antitrust case against Apple, depending on how it goes about creating its streaming-music business, which the tech media has dubbed “iRadio.”
“It could potentially be a problem, depending on what Apple does,” said Rutgers University law professor Michael Carrier.
Apple’s attorneys know antitrust law well; on Monday, the Justice Department went to court against the company, saying it colluded in the e-book market.
In a courtroom in New York, a Justice Department lawyer called Apple’s deal with five book publishers a “straightforward case of price-fixing,” while Apple attorney Orin Snyder said, “When the U.S. government brings a case, many assume it must have merit. We will demonstrate the government has it wrong.”
Apple has built its position in the music industry through iTunes and the popular products that use it, including the iPod, iPhone and iPad. Although many consumers like its user interface, the key to the success of iTunes has been deals that Apple’s founder Steve Jobs signed with music companies to sell their offerings through the service.
Apple’s streaming music service would rely on new licensing deals with these same companies to reportedly deliver streaming music to the taste of individual users, much as Pandora does. But Apple’s service would be integrated on a dominant music platform, well familiar to millions of consumers. On Monday, Pandora’s stock dropped nearly 11 percent.
There is no sign that Apple has violated any antitrust laws in the streaming-music business. The company has not even announced or publicly acknowledged that the service is under consideration, despite multiple reports that it could be unveiled as soon as next week.
In the music business, several experts said, the key issue would be whether Apple reached exclusive deals that took advantage of the market power of iTunes to keep Pandora or Spotify from competing for customers. Google also is planning to enter the streaming-music market.
Any move by Apple requiring iTunes users to use the new streaming music service instead of rival ones would get regulators interested. They also would look for signs that music companies were being bullied into deals that tied access to the iTunes store to access to the streaming service.
One scenario, experts said, would be for regulators to initially monitor developments in the streaming-music market for signs of problems. Antitrust cases are notoriously difficult for the government to win, at least in the United States.
In the years since the Justice Department’s showdown with Microsoft in the late 1990s, courts have become more reluctant to step into markets, especially in fast-moving industries such as technology.
Even when a company has a dominant position in a market — as Google does in Internet searches — regulators are cautious about acting when the next wave of innovation may disrupt a market before officials can bring a case to court.
“I see the regulators struggling really hard figuring out what to do,” Carrier said before adding, “Because it’s Apple, they’ll keep a close eye on it.”
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