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On September 6, 2018, the European Commission (EC) unconditionally approved Apple’s acquisition of the British music application company Shazam. Apple announced its intention to acquire Shazam for $400 million (around €343 million) at the end of 2017.

Apple operates Apple Music, the world’s second largest streaming service after Spotify; Shazam is the world’s leading music recognition application. Shazam identifies music being played based on a recorded sample captured by a mobile telephone’s microphone. The recorded sample is compared to a database that finds matches and retrieves information such as the title of the song, the artist, the album, and suggestions for similar songs. Shazam also offers its users links to services like Apple Music, YouTube, Spotify, and Deezer, where users can listen to or buy the musical composition identified.

Although the potential acquisition did not reach the EU notification thresholds, on February 6, the EC confirmed that it would be reviewing the transaction at the request of Austria, France, Iceland, Norway, Spain, and Sweden under the right of referral established in article 22.1 EU Merger Regulation. These countries were concerned that the transaction could adversely affect competition in the European Economic Area.

Apple notified the EC of the transaction on March 14, 2018. On April 23, the EC agreed to open an in-depth investigation into the effects of the transaction on competition (phase II). Particularly, it wanted to consider whether (i) Apple would obtain access to commercially sensitive data relating to its competitors’ customers that it could use to encourage them to switch from their service to Apple Music; and (ii) Apple Music’s competitors would be harmed if Shazam stopped offering links referring its users to applications that competed with Apple Music, to the benefit of the latter.

After an investigation lasting nearly six months, with input from different players in the music industry, the EC found that the streaming service offered by Apple and Shazam’s music recognition application were complementary, and not mutually competing, services. Also, the EC concluded that the merged entity would not be able to shut out Apple competitors like Spotify or Deezer that also participate in the market for streaming services. The EC has not made the decision public yet, but its press release can be accessed here. In particular, the EC has indicated that:

  • The merged entity would not be able to shut out Apple’s competitors by accessing commercially sensitive information about their customers. The EC indicated that access to Shazam’s data would not considerably increase Apple’s ability to target music enthusiasts and that “any conduct aimed at making customers switch would have only a negligible impact. Therefore, competing providers of digital music streaming services would not be shut out of the market;”
  • The merged entity would not be able to shut out Apple competitors by restricting access to the Shazam app, as the app is not “a key entry point to the market for music streaming services”; and
  • Integration of Shazam’s and Apple’s databases “would not confer a unique advantage on the merged entity.” Shazam’s data is not unique, and Apple’s competitors would still have the opportunity to access and use similar databases.

Therefore, the EC concluded that the transaction would not raise any competition concerns, giving the proposed merger its unconditional approval. This is rather uncommon, in that in the past six years the EC has given only eight transactions unconditional clearance in phase II out of 36 transactions approved in phase II.

Evaluation

The EC’s interest in the transaction and its conclusions highlight the key role of data in the digital economy and the impact that the concentration of providers with access to large data sets and sensitive commercial data can have on competition. This is the first time the EC has opened a phase II investigation of a merger transaction specially directed at the impact of data as an instrument of competition since its previous examination of its repercussions in the Facebook/WhatsApp and Microsoft/LinkedIn matters.

“We must carefully review transactions that lead to the acquisition of important sets of data, including commercially sensitive ones, to ensure they do not restrict competition.

Margrethe Vestager, the European Union’s Commissioner for Competition (September 6, 2018)

While no generally applicable approach is discernible, the EC does not seem to consider data acquisition in itself to be harmful to competition; it does seem to consider that, to decide whether data acquisition would have anticompetitive effects, the type of data acquired and its uniqueness must be assessed, i.e., whether it is readily replicable, as well as assessing whether the data would enable the resulting entity to shut competitors out of the market.

Lastly, we highlight that if the authorities of various Member States had not requested referral, this transaction would have remained outside EC oversight, as it did not reach the thresholds established in article 1 EU Merger Regulation. Again, with other cases like Facebook/WhatsApp in mind, this also ties in with the debate on the effectiveness of assessing concentrations based solely on the turnover threshold.

As this case shows, transactions that may be critical in the digital economy and also in other sectors, like the pharmaceutical industry, can fall outside EC control if they do not meet the turnover thresholds. For example, certain business models based on data collection and analysis could have a very low turnover despite having a high acquisition value and considerable actual or potential market impact. To avoid this situation, in the Public Consultation on Merger Control that ended in January 2017, the EC raised the possibility of instituting additional notification thresholds based on other criteria, such as transaction value. Currently, this is already a reality in Austria and Germany, where, in addition to turnover-based thresholds, an additional transaction value-based threshold has been in effect since the second half of 2017.

 

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mireia.prat@cuatrecasas.com

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cristina.vila@cuatrecasas.com

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