Antitrust scrutiny of major tech corporations has been intensifying in recent years as critics argue that the companies wield too much power in their respective markets. For Apple (NASDAQ:AAPL), the main criticisms revolve around the App Store, which is the only way for average consumers to download apps and other content to mobile devices. The Mac maker reported fiscal fourth-quarter results last week and subsequently filed its annual report.
Apple warned investors of the heightened risks it now faces around antitrust concerns.
Apple CEO Tim Cook. Image source: Apple.
Acknowledging antitrust risks
In the risk factors section of the 10-K, Apple has added new language around the complex laws and regulations that it must navigate, highlighting the possibility of new regulations being imposed on the sector. The company wrote:
In addition, if enacted, legislative and other proposals to further regulate technology companies could result in changes to the Company’s business, including requiring the Company to modify its product and service offerings, limiting the Company’s ability to invest in strategic acquisitions, or affecting the Company’s business relationships with other technology companies, and could have a materially adverse impact on the Company’s financial condition and operating results. Further, the Company’s business partners are or may become subject to litigation that, if resolved against them, could affect the Company’s relationships with these business partners and have a materially adverse impact on the Company’s financial condition and operating results.
This section likely refers to controversial partnerships that Apple has inked with Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) subsidiary Google and/or Amazon.com (NASDAQ:AMZN).
The Department of Justice filed an antitrust complaint against Google last month, which included allegations that Google’s deal with Apple to be the default search provider in Apple devices undermines competition. Financial details around the agreement are closely guarded, but analysts have estimated that Google pays as much as $12 billion per year to Apple for search referral traffic. That would represent over 20% of the services segment, which generated $53.8 billion in revenue last fiscal year.
Amazon was able secure a sweetheart deal with Apple regarding video subscriptions sold through the Prime Video app on Apple platforms, paying just 15% instead of the standard 30%. The company said that it has had an “established” program for “premium subscription video entertainment,” but no one had ever heard of it prior to this year. Apple later clarified that there are 130 video apps now participating in that program, but emails between services chief Eddy Cue and Amazon CEO Jeff Bezos from 2016 suggest that Apple created the program for Amazon.
There’s also a new sentence in the filing that addresses the App Store cut. The House Judiciary Committee concluded a 16-month investigation into tech companies and released its findings last month, alleging that the App Store represents a monopoly.
“If the rate of the commission that the Company retains on [App Store] sales is reduced, or if it is otherwise narrowed in scope or eliminated, the Company’s financial condition and operating results could be materially adversely affected,” Apple warned.
