Apple takes further step into music: EU Regulators formally approve its planned Shazam acquisition

Apple® logo (copyright: Apple)

Apple® logo (copyright: Apple)

Last week, the European Commission has given its official approval to Apple’s planned acquisition of British song-recognition app Shazam, after months of investigation. The in-depth study by EU regulators focused onto whether the deal would give the Cupertino, California-based company an unfair advantage over rival music services like Spotify. Now, despite Apple hasn’t revealed how it intends to use Shazam when the acquisition completes, the deal is fully set to go ahead and to give Apple a full boost to its Music and Siri segments.

Background

In mid-December last year, US tech giant Apple announced it was officially going to acquire British music recognition app Shazam for a reported $400 million (£300 million) sum. “We are excited to announce that Shazam has entered into an agreement to become part of Apple”, Shazam’s management said in a statement to The Verge back then.

On February 6, 2018, the Commission accepted a request from a group of EU countries including Austria, France, Norway and Sweden to assess the acquisition of Shazam by Apple under the EU Merger Regulation. On 23 April 2018, the European Commission stated that it would be reviewing the acquisition with a formal in-depth investigation, aimed at determining whether the acquisition would somehow give Apple unfair advantage over rival streaming music services.

Core business

Apple and Shazam mainly offer complementary services and do not compete with each other. Shazam identifies songs with just a short audio sample, or “fingerprint”, based on a time-frequency graph called a spectrogram. Shazam works by analysing the captured sound and seeking a match based on the acoustic fingerprint in a database of more than 11 million songs and, if it finds a match, it sends information such as the artist, song title, and album back to the user. Shazam and Apple became closer in 2014, when the music app was integrated into Apple’s Siri virtual assistant, allowing users to ask, “Hey Siri, what song is playing?”, the iPhone or iPad will listen to the environment and use Shazam to identify the track.

The Commission’s investigation

EU Regulators questioned whether the app held important information on Apple competitors, such as Swedish company Spotify, focusing on data transfer. The Commission said it undertook “a wide range of investigative measures” and received feedback from key market participants in the digital music industry, including providers of music streaming and music recognition services, to complete its study.

In particular, the investigation by the EU’s watchdog wanted to assess whether Apple would obtain access to commercially sensitive data about customers of its competitors for the provision of music streaming services in the EEA, and whether such data could allow Apple to directly target its competitors’ customers and encourage them to switch to Apple Music. Also, on a different level, the investigation wanted to determine whether Apple, considering Shazam’s strong position in the market for music recognition apps, were to discontinue referrals to competitors from the Shazam’s platform after the acquisition.

The EU’s approval

Last week, after months of investigation, EU Regulators have formally approved, under the EU Merger Regulation, the proposed acquisition of Shazam by Apple. The Commission concluded that the merger “would not adversely affect competition in the European Economic Area or any substantial part of it”, as declared by the Commission in an official EU statement, published last Thursday.

Commissioner Margrethe Vestager, in charge of competition policy, said: “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”.

Findings and resolutions

Following its investigation, the Commission has declared it has found that merged entity “would not be able to shut out competing providers of digital music streaming services by accessing commercially sensitive information about their customers”, and that it would not be able to shut out competing providers of digital music streaming services by restricting access to the Shazam app. The Commission believes that access to Shazam’s data would not materially increase Apple’s ability to target consumers and “any conduct aimed at making customers switch would only have a negligible impact”, as stated in its official press release last week.

Rare case

According to the New York Times and overseas news outlets, the case represents “a rare instance in which European antitrust authorities have passed on an opportunity to act against an American technology giant”. The clear mention here is to some landmark cases such as another “EU vs Apple” case, when Ireland was ordered by the Commission to collect €13 billion in back taxes from US giant technology company Apple Inc. – following an investigation into the multinational company’s affairs.

In that case, The Commission argued that Ireland extended preferential tax treatment to Apple for years – purportedly in the hopes that this would attract and consolidate its business in the country – which allegedly resulted in Apple paying only minimal taxes in the European Union. Both the US company and the Irish government are appealing the EU’s ruling, despite Ireland has already transferred a first € 1.5 billion payment to an escrow account set up by the Irish government in May this year.

Open investigations

Amazon, Facebook, Google and the American chip-maker Qualcomm have also been fined in recent years. According to the European Commission, the “vast majority” of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).

As declared by the European Commission, there are currently six on-going Phase II merger investigations: the proposed acquisition of Aurubis Rolled Products and Schwermetall by Wieland, the proposed acquisition of MKM by KME, the proposed acquisition of Gemalto by Thales, the proposed acquisition of Alstom by Siemens, the proposed acquisition of Solvay’s nylon business by BASF and the proposed acquisition of Tele2 NL by T-Mobile NL.

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