10 September 2018
Big Data has been a focus for DG Competition for the last few years. In particular, the Commission has been interested in mergers involving the acquisition of a company holding valuable data, even if it has low turnover (see here). Apple’s $400 million acquisition of Shazam, approved by the Commission on 6 September 2018, falls squarely within this category.
Shazam is a music recognition app. Consumers can use Shazam to record a clip of an unknown song playing in a bar or other public place – Shazam turns this into an audio fingerprint and matches this against its database containing the audio fingerprints for millions of songs in order to identify the song playing. Shazam generates revenue through referring users once a song has been identified to Spotify, iTunes, Google Play music or other streaming services. Although Shazam has been downloaded over 1 billion times, and is used over 20 million times a day, in 2016 it made a loss of over £3.5 million on revenues of just over $40 million. Apple isn’t buying Shazam for its profitability, but rather the data it possesses on its millions of users, including which songs they like to listen to and other trends.
There have been a string of mergers in which data has been an issue, starting with Google/DoubleClick in 2008 and including Facebook/WhatsApp in 2014, and Microsoft/LinkedIn in 2016. In most of these cases, the data-related concerns have centred on potential barriers to entry arising due to the concentration of valuable data in the hands of one company. The Commission looked for example at whether other advertisers would be able to replicate the data held by Google after its acquisition of DoubleClick, or whether access to the LinkedIn database was an essential part of developing advanced customer relationship management technology using machine learning in the Microsoft case.
In Apple/Shazam the concern was different. The Commission opened a phase II review of the transaction on 23 April 2018 (here) because it was concerned that access to Shazam’s data might enable Apple to target directly the customers of its rivals (such as Spotify or Google Play Music) to encourage them to switch to Apple Music. Unlike the more general concern in previous cases that it might be harder for new players to enter the market, here the Commission was specifically concerned about the potential for active harm to Apple’s competitors. However, following its review, the Commission concluded (here) that:
- Access to Shazam's data would not materially increase Apple's ability to target music enthusiasts and any conduct aimed at making customers switch would only have a negligible impact.
- The merged entity would not be able to shut out competing providers of digital music streaming services by restricting access to the Shazam app; the app has a limited importance as an entry point to music streaming services.
- The integration of Shazam's and Apple's datasets on user data would not confer a unique advantage to the merged entity in the markets on which it operates; Shazam's data is not unique and Apple's competitors would still have the opportunity to access and use similar databases.
Commissioner Vestager released a short statement accompanying the clearance:
"Data is key in the digital economy. We must therefore carefully review transactions which lead to the acquisition of important sets of data, including potentially commercially sensitive ones, to ensure they do not restrict competition. After thoroughly analysing Shazam's user and music data, we found that their acquisition by Apple would not reduce competition in the digital music streaming market."
There seemed to be a hint of disappointment that the Apple/Shazam transaction had not ultimately enabled the Commission to take real action against a big tech company hoovering up a smaller but data-rich target, but Vestager’s comments do reveal how seriously the Commission views the acquisition of data and its potential to pose a threat to fair competition.
There are a number of other interesting aspects to this particular transaction. The Commission’s press release also explicitly stated that “a merger decision does not release companies from respecting all relevant data protection laws”. We have previously looked at the privacy / competition overlap (here and here for example) and this is a pointed reminder from the Commission that whilst there are no competition concerns related to the data in this transaction, Apple will have to ensure that it treats the newly acquired data in a manner that complies with the GDPR. Apple/Shazam did not meet the turnover thresholds set by the EUMR. It was reviewed by the Commission only because Austria (the one Member State where the transaction did meet the national merger notification threshold) submitted a referral request to the Commission under Article 22(1) EUMR. This was the first time in over two years that a national competition authority had referred a transaction up to the Commission. Austria’s request was joined by Iceland, Italy, France, Norway, Spain and Sweden – equal to the record highest number of authorities seeking a referral (here – subscription required). The interest taken by these national authorities in this transaction reflects the increasing recognition of the importance of acquisitions of innovative companies. There have been some concerns that high value transactions of companies with low turnovers (but valuable data) may escape review by competition regulators. For example Intel’s 2017 $15 billion acquisition of Mobileye, an Israeli company manufacturing self-driving car technologies, avoided review in Europe due to Mobileye’s low revenues in Europe. As we discussed here, Germany (like Austria) has recently amended its domestic competition law; changing its merger thresholds to try and capture these kinds of transactions.
We suspect there will be plenty more phase II investigations of big data mergers in the future.