Could This Foreign Matter Slow Apple Inc.'s Coming Spotify and Pandora Challenger?

Source: Apple.

This year looks to be a period of renewal for tech giant Apple in a host of ways.

The iPhone 6 has driven an upgrade cycle like none other. Soon, the Apple Watch will mark the company's first all-new product in almost five years. Looking further into the year, Apple is widely expected to launch both its own streaming TV service and a revamped version of its iTunes software.

When it comes to the iTunes overhaul, Apple is reportedly under increased scrutiny from one key regulatory body as it prepares to further challenge the likes of Pandora and Spotifyin the growing streaming music space later this year.

Apple's trouble across the pondLast week, both Reutersand The New York Timespublished articles detailing the European Commission's reviewing Apple's competitive practices in the music industry. According to the reports, the EU sent a series of questionnaires to various streaming music companies in an attempt to assess the competitive state of the industry.

Of particular interest, the EU reportedly wants to gauge whether Apple has used its outsized clout in the music industry to prevent smaller music upstarts from acquiring content at as favorable of terms as does the tech giant. Understandably, the European Commission appears concerned that Apple's music industry practices create or influence a business climate in which free, ad-supported streaming companies can have difficulty competing.

American tech companies have encountered increased regulatory scrutiny in Europe of late, and this is just the latest example. Google, whose search engine controls roughly 90% of the European search market, remains mired in a five-year probe by the European Commission into its competitive practices in the continent. Social networking kingpin Facebook is being investigated by at least three different European countries over its user privacy and data-sharing practices. Regulators have also focused on Apple, Facebook, and Amazon.comover the possible tax benefits of their European subsidiaries. So pressure on Apple's potential music service would be by no means out of the norm within Europe's current regulatory climate.

What could it mean for Apple's Pandora and Spotify challenger?The revamped version of Apple's iTunes software is widely expectedto feature an updated streaming option that incorporates some Beats-fueled personalization and recommendations, which would place Apple in even more direct competition with music streamers such as Pandora and Spotify.

In practical terms, the EU inquiry can do little to stop or slow Apple from moving forward with its streaming ambitions. Should the body ultimately rule Apple indeed engaged in anticompetitive measures, the European Commission's most extreme penalty could be to fine Apple as much as 10% of its annual revenue. That would be an absolutely staggering penalty given Apple's massive sales base and Apple would most likely fight tooth and nail against any such fines, but the key point here is that the European Commission's authority appears to fall short of actually being able to halt the launch or operations of Apple's upcoming streaming service.

Both Pandora and Spotify have established strong brands and large user bases over the past several years. However, given Apple's massive global installed user base and its ability to optimally integrate services such as its upcoming streaming service, I believe this offering could prove a serious competitive threat to both companies almost overnight. So while the European regulatory situation remains an important subplot in this slowly developing storyline, it appears unlikely to dramatically alter Apple's ambitions to enter the space later this year.

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Andrew Tonner owns shares of Apple. The Motley Fool recommends, Apple, Facebook, Google (A shares), Google (C shares), and Pandora Media. The Motley Fool owns shares of, Apple, Facebook, Google (A shares), Google (C shares), and Pandora Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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