Legally, you have to pay more expensive royalties if you download music (referred to as "right to reproduce") rather than stream (right to transmit), so a special type of downloaded file must be used that can't be exported in any way. This is what Apple are prohibiting.
> That’s why I nearly jumped for joy during the watchOS 5 announcement in June, when Apple unveiled most of my list of watchOS changes needed to make good podcast apps.
In my understanding, an Apple Watch Spotify app would surely be technically feasible as of watchOS 5 (but I might be in the wrong here, I haven't tried myself more than read the available API docs).
Yes, but I would guess that limitation is done for some "legitimate" technical reason. Streaming Apple Music on the watch just kills the battery life in my experience, and it seems pretty on par with Apple's M-O of limiting expensive hardware access to third parties (like multitasking back in the days). But who knows, could perhaps be out of some evil anti-spotify spite.
> I wouldn't be surprised if a Watch app that allows offline playback would get rejected.
Maybe, but Pandora seems to have done it without problem.