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.
On February 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.
Apple 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.
The 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.
The Commission has until September 4, 2018, to make a decision on the deal. We will report on any significant developments.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.