European Competition Watchdog Says “Shazam!” and Opens In-Depth Investigation Into Apple-Shazam Deal Over Consumer Data Concerns
In December 2017, Apple announced its intention to purchase UK-based
app maker Shazam for $400 million. Shazam is best known for developing one of
the most popular music recognition apps, which uses a mobile device’s built-in
microphone to listen to and identify songs for the user. Because of Shazam’s
relatively low revenue numbers, the proposed acquisition did not contain an “EU
dimension” based on certain “turnover” (read: revenue) thresholds set by the EU
Merger Regulation, and therefore Apple was not required to notify the European
Commission of the deal. However, Apple did report the transaction for
regulatory clearance in Austria, where the deal met the national notification
thresholds. Subsequently, Austria, joined by several other European countries,
requested that the European Commission, the EU’s competition watchdog, examine
the acquisition. Under Article 22(1) of the EU
Merger Regulation, Member States may ask the Commission to examine a merger
that does not have an EU dimension but that may otherwise significantly affect
competition in the requesting Member State.
6, 2018, the European
Commission announced that based on the referrals, it had determined that
the transaction “may have a significant adverse effect on competition in the
European Economic Area,” and asked Apple “to notify the transaction” so the Commission
could begin its Phase I investigation. Phase I investigations typically involve
requests for information from the merging companies or third parties, and other
questionnaires and information gathering from market participants to obtain
their views on the merger. Typically, more than 90% of mergers are cleared
after this initial investigation, with most not requiring any sort of
additional remedies. However, if a merger still presents competitive concerns,
the Commission will open a Phase II investigation, which involves a more
in-depth analysis of the potential effects of the merger.
officially noticed the transaction on March 14, 2018, which triggered the Phase
I investigation. The deal apparently presented sufficient competition concerns
to warrant further investigation. On April 23, 2018, the Commission
announced that it was opening a Phase II in-depth investigation into the
proposed transaction, citing concerns that the merger could “reduce choice for
users of music streaming services.” The Commission’s concerns stem from Apple
Music’s strong position in the music streaming market (as the second largest
provider in Europe), and Shazam’s strong position in the music recognition apps
market (as the leading app for mobile devices in Europe and worldwide). The
Commission cited two main concerns. First, the Commission is concerned that
through the merger, Apple would gain access to commercially sensitive data
about consumers that it could use to better poach customers away from Apple
Music competitors, thus putting its competitors at a disadvantage. Second, upon
recognizing a song, Shazam currently refers a user to various music providers
where the user can purchase or stream that song. The Commission is concerned
that upon being acquired by Apple, Shazam may no longer refer users to Apple’s
competitors. Tempering this concern, however, the Commission notes that it does
not view Shazam as a “key entry point” for music streaming services — indicating that Shazam
referrals may not generate a significant amount of sales for music streaming providers.
Commission’s decision highlights how antitrust regulators are becoming
increasingly concerned with the value of consumer data, and how companies may
be able to use that data to affect the competitive landscape in their industry.
Even though merging companies may not even be competitors in the same market
space, like Apple and Shazam, regulators are becoming more aware of how data
collected by one company may be used in an anticompetitive manner by another.
Technology companies considering similar acquisitions that involve
competitively sensitive consumer data should anticipate at least increased
scrutiny of those deals by regulators.
Commission has until September 4, 2018, to make a decision on the deal. We will
report on any significant developments.