Summary of Commission Decision

of 6 September 2018

declaring a concentration compatible with the internal market and the functioning of the EEA Agreement

(Case M.8788 — Apple/Shazam)

(notified under document C(2018) 5534)

(Only the English text is authentic)

(Text with EEA relevance)

(2018/C 417/04)

On 6 September 2018, the Commission adopted a Decision in a merger case under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (1) , and in particular Article 8(2) of that Regulation. A non-confidential version of the full Decision, as the case may be in the form of a provisional version, can be found in the authentic language of the case on the website of the Directorate-General for Competition, at the following address: http://ec.europa.eu/competition/index_en.html

1. THE PROCEDURE

(1) On 21 December 2017, the European Commission (the ‘Commission’) received a referral request from the Federal competition authority of Austria pursuant to Article 22(1) of the Merger Regulation ( 2 ) concerning the proposed transaction by which Apple Inc. (‘Apple’ or the ‘Notifying Party’, of the United States) acquires sole control of Shazam Entertainment Ltd (‘Shazam’, of the United Kingdom, and, together with Apple, the ‘Parties’) (the ‘Transaction’) ( 3 )

(2) The national competition authorities of France, Iceland, Italy, Norway, Spain and Sweden (together with Austria, the ‘Referring States’) subsequently joined the request made by the Federal competition authority of Austria.

(3) On 6 February 2018, the Commission issued decisions by which it accepted the referral requests of the Referring States and decided to examine the Transaction pursuant to Article 22(3) of the Merger Regulation (‘the Article 22 Decisions’).

(4) On 14 March 2018, the Commission received a notification of the Transaction pursuant to Article 4 of the Merger Regulation.

(5) After the phase I investigation, the Commission concluded that the Transaction raised serious doubts as to its compatibility with the internal market and adopted a decision to initiate proceedings pursuant to Article 6(1)(c) of the Merger Regulation on 23 April 2018 (the ‘Article 6(1)(c) Decision’).

(6) On 15 May 2018, the Notifying Party submitted its reply to the Article 6(1)(c) Decision (the ‘Reply to the Article 6(1)(c) Decision’). On the same day, the second phase investigation period was extended by ten working days at the request of the Notifying Party pursuant to the second subparagraph, first sentence, of Article 10(3) of the Merger Regulation.

2. THE PARTIES AND THE TRANSACTION

(7) Apple designs, manufactures and sells mobile communication and media devices (such as the ‘iPhone’, the ‘iPad’, the ‘Apple TV’) and personal computers (‘Mac’). It also develops a variety of software which are installed on the devices and computers it sells, including operating systems (‘OSs’) for its various devices (e.g. its personal computers (‘macOS’), its mobile devices (‘iOS’), its smart watches (‘watchOS’) and its smart TVs (‘tvOS’)), virtual assistant solutions (‘SIRI’) and other products and services. In particular, it offers the music and video streaming service ‘Apple Music’.

(8) Shazam is a developer and distributor of music recognition applications (‘apps’) for smartphones, tablets and personal computers (‘PCs’).

(9) Pursuant to the share purchase agreement concluded on 10 December 2017, following completion of the Transaction Apple will hold the entire issued share capital of Shazam and thus acquire sole control over Shazam. Therefore, the Transaction constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

3. JURISDICTION OF THE COMMISSION

(10) The Transaction does not have a Union dimension within the meaning of Article 1 of the Merger Regulation, as the Parties' turnover does not meet the thresholds of Article 1(2) or 1(3) of the Merger Regulation.

(11) On 6 February 2018, the Commission issued the Article 22 Decisions and acquired jurisdiction to scrutinise the effects of the Transaction.

4. RELEVANT MARKETS

(12) For the assessment of the Transaction, the following business activities of the Parties are relevant: (1) Apple develops OSs for its various devices, for which third parties can develop software solutions and apps; (2) Shazam is active in the provision of automatic content recognition (‘ACR’) software solutions, including music recognition apps ( 4 ) ; (3) Apple is active in the provision of digital music distribution services; (4) both Parties are active in the licensing of music data; and (5) both Parties are active in the provision of online advertising services.

(13) The relevant product and geographic markets are defined as follows.

4.1. Software solutions platforms

(14) Apple develops OSs for different types of devices. For the purpose of the assessment of the Transaction, those OSs are relevant to the extent that third parties develop software solutions and apps, including, among others, music recognition apps developers such as Shazam, for those OSs in order to reach end-users of Apple's devices. Thus, in the Decision, the Commission discusses OSs as software solutions and/or apps platforms.

(15) For the purpose of the assessment of the Transaction the Commission considers that the relevant product markets are: (i) software solutions and/or apps platforms for PCs; (ii) software solutions and/or apps platforms for smart mobile devices; (iii) software solutions and/or apps platforms for smart wearables (including smart watches); (iv) software solutions and/or apps platforms for smart watches; and (v) software solutions and/or apps platforms for smart TVs.

(16) The geographic markets for software solutions and/or apps platforms for each of PCs, smart mobile devices, smart wearable (including smart watches), smart watches and smart TVs are at least EEA-wide, if not worldwide.

4.2. Digital music distribution services

(17) The retail models prevailing for digital music distribution services are music streaming and music downloading ( 5 ) . Streaming services can comprise basic ad-sponsored services, available free of charge, and a premium, paid-for, services. The services are available on different software solutions platforms, although commonly most used on Android and iOS.

(18) The Commission considers that the question whether the relevant product market should include both music streaming and music downloading can be left open. The competitive assessment is done on the narrowest basis, namely on the market for digital music streaming services for smart mobile devices, excluding video streaming services (in the following the market for ‘digital music streaming apps’).

(19) The precise geographic scope of the market for digital music streaming apps is left open. The competitive assessment is done both on EEA-wide and national basis.

4.3. ACR software solutions, including music recognition apps

(20) ACR software solutions are based on an audio identification technology, which uses a device's microphone to recognise (audio or video) content. Music recognition solutions are part of the broader category of ACR software solutions and are specifically used to identify music content. ACR software solutions, including music recognition solutions, could be used on different devices.

(21) The market investigation did not provide a conclusive finding as to whether the relevant product market is limited to dedicated stand-alone music recognition software solutions by device type or whether it has to be defined broader covering software solutions for all device types and all types of ACR software solutions.

(22) The competitive assessment is done both on the overall market for ACR software solutions and on the narrowest basis, that is a market for dedicated stand-alone music recognition software solutions or apps for each of PCs, smart mobile devices, smart watches and smart TVs.

(23) The geographic scope of the markets is considered to be at least EEA-wide.

4.4. Licensing of music data

(24) Shazam publishes and licenses music data charts identifying songs and artists that are showing strong positive momentum within the Shazam music recognition app in a certain geographic territory (‘music discovery charts’). Apple offers data products similar to those offered by Shazam based on its users' usage patterns (‘music consumption charts’).

(25) The Commission considers that the question whether Shazam's music discovery charts and Apple's music consumption charts are part of the same product market can be left open.

(26) The Commission considers that the question whether the geographic scope of the market for licensing of music data is national, EEA or worldwide can be left open.

4.5. Online advertising

(27) The Commission considers that the question whether online advertising targeting music enthusiasts constitutes a separate market can be left open.

(28) The Commission considers that the market for online advertising and its possible sub-segments are likely national in scope or alongside linguistic borders within the EEA.

5. COMPETITIVE ASSESSMENT

5.1. Assessment of horizontal effects

5.1.1. Licensing of music charts data

(29) Both Apple and Shazam are active in the licensing of music data worldwide, as well as in the EEA and in the Referring States.

(30) The Decision concludes that the Transaction is unlikely to lead to a significant impediment of effective competition, since the Parties' products were largely complementary to each other, a number of established competitors will remain active post-Transaction and the parties' music chart data does not appear to be unique.

5.1.2. Online advertising

(31) Both Apple and Shazam are active in the provision of online advertising services, but no overlap arises between their activities at national level, or in markets defined alongside linguistic borders within the EEA, in the Referring States.

(32) The Commission further considers that even if post-Transaction Apple were to use some of its assets (such as in particular user data) to strengthen Shazam's position in the market/segment for online advertising targeted at music enthusiasts, this is unlikely to lead to a significant impediment of competition. Indeed, a number of major companies offering online advertising services that reach far larger target groups than Shazam, including Google and Facebook, allow advertisers to target specific audiences based on their interest and also allow the targeting of music enthusiasts. Further, other digital music streaming players collect and have databases on music enthusiasts similar to Apple Music and could potentially partner with providers of advertising services, should this type of data be needed to compete in the music enthusiast segment.

5.2. Assessment of non-horizontal effects

5.2.1. Possible foreclosure of competing providers of digital music streaming apps

5.2.1.1. Access to commercially sensitive information

(33) Shazam currently collects certain data on users of third party's apps, and in particular digital music streaming apps, installed on the same smart mobile devices where the Shazam app is installed. Through this data, post-Transaction, Apple could thus derive a list of customers of Apple Music's rivals on non-iOS devices, notably Android ( 6 )

(34) The Commission has assessed whether, through the acquisition of control over the Shazam app and the above described data, Apple could gain access to commercially sensitive information of its competitors in the markets for digital music streaming apps active on non-iOS devices and whether this could lead to any non-horizontal non-coordinated anticompetitive effects pursuant to paragraph 78 of the Non-Horizontal Merger Guidelines ( 7 )

(35) Pursuant to that provision, a merged entity may, by vertically integrating, gain access to commercially sensitive information regarding the upstream or downstream activities of rivals. This may also put competitors at a competitive disadvantage, thereby dissuading them to enter or expand in the market.

(36) In the Decision the Commission considers that the data to which Apple would acquire access constitutes commercially sensitive information on Apple Music's rivals in the market for digital music streaming apps in the EEA and in the Referring States within the meaning of paragraph 78 of the Non-Horizontal Merger Guidelines.

(37) However, the Commission considers that it is unclear whether the merged entity would be able to put competing providers of digital music streaming apps at a competitive disadvantage by using the data acquired through the Transaction to perform more targeted advertising or marketing campaigns. While the merged entity would have the technical ability to access Shazam's data, there appears to be some legal or contractual limitations (including applicable data protection rules) to the use of that data by Apple post-Transaction.

(38) Second, also based on Apple's internal documents, the Commission considers that it is unclear whether the merged entity would have the incentives to use commercially sensitive information to put rivals at a competitive disadvantage. Moreover, in response to a request for information pursuant to Article 11(2) of the Merger Regulation, Apple has stated its plans to change Shazam's data collection practices to bring them in line with Apple's industry leading-positions on privacy and to update the Shazam app for OSs other than Apple's OSs so that it will not send to Apple data on users of third party's apps, unless the music streaming service provider of those users agrees to allow this information to be sent to Apple.

(39) Third, the Commission considers that the Transaction is unlikely to have a negative impact on effective competition in the markets for digital music streaming apps in the EEA, Austria, France, Iceland, Italy, Norway, Spain and Sweden due to access to commercially sensitive information. This is because: (i) any app developer could gather similar information on Android; (ii) there exist several providers allowing for the targeting of ‘music enthusiast’ audiences, which Apple could rely upon to target music enthusiasts already pre-Transaction and on which post-Transaction Apple Music's rivals could also rely; (iii) the market investigation confirmed that the digital music streaming markets in the EEA and in the Referring States are growing considerably and that growth comes mainly through subscription of new customers rather than win-back of competitors' customers.

5.2.1.2. Other non-coordinated effects to the detriment of competing providers of digital music streaming apps

(40) Music recognition apps and digital music streaming apps can be considered complementary or at least closely related products within the meaning of paragraph 91 of the Non-Horizontal Merger Guidelines.

(41) The Commission has considered whether the merged entity could increase Apple Music's market position in the markets for digital music streaming apps by leveraging Shazam's position in the market for music recognition apps in the EEA. This could be achieved by engaging in the following restricting and exclusionary practices: (i) denial or degradation of access to Shazam's referral mechanism as customer acquisition channel or as functionality, which boosts user engagement or enriches user experience on digital music streaming apps; (ii) denial or degradation of access to Shazam as advertising tool; (iii) integration of Shazam's music recognition functionalities within the Apple Music apps; or (iv) restriction of access to Shazam user data as an important input to improve existing functionalities, or offer additional functionalities, on digital music streaming apps.

(42) The Commission considers that, even if the merged entity had the technical ability and the incentives to engage in the mentioned practices, it is unlikely that the such conducts would have a negative impact on effective competition, and thus that the Transaction would lead to a significant impediment of effective competition in the markets for digital music streaming apps. This is because: (i) Shazam's high market share has not translated into a significant degree of market power within the meaning of paragraphs 23 of the Non-Horizontal Merger Guidelines; (ii) Shazam is not a significant customer acquisition channel (Shazam's referrals only account for negligible percentage of the new users of digital music streaming services in the EEA and at national level (depending on the Referring State)); (iii) Shazam's referral mechanism does not boost user engagement or enriches user experience on digital music streaming apps; (iv) Shazam is not a significant advertising tool to target music enthusiasts and alternative and more effective customer acquisition tools would remain available to competitors; (v) Shazam's ACR technology is not a significant input and alternative providers would remain available in the market; and (vi) Shazam's data are not unique and Apple's competitors would have the opportunity to access similar database in terms of variety, velocity, volume and value.

5.2.2. Possible foreclosure of competing providers of ACR software solutions, including music recognition apps

(43) ACR software solutions and software solutions platform for PCs, smart TVs, smart mobile devices and smart wearables can be considered complementary or at least closely related products within the meaning of paragraph 91 of the Non-Horizontal Merger Guidelines.

(44) The Commission has considered whether the merged entity could increase Shazam's market position in the market for ACR software solutions, including music recognition apps, by leveraging Apple's position as software solutions platform.

(45) The Commission considers that, even if the merged entity had the technical ability and the incentives to engage in such leveraging practices, it is unlikely that such conducts would have a negative impact on competition, and thus that the Transaction would lead to a significant impediment of effective competition in the market for ACR software solutions. This is because: (i) this concern does not seem to be merger specific, as already pre-Transaction Shazam and Apple had an ongoing partnership; (ii) the majority of respondents to the market investigation does not consider that the Transaction will have an impact on the market; (iii) several other software solutions platforms would remain available post-Transaction to providers of ACR software solutions; (iv) Shazam's deeper integration with Apple has not prevented other music recognition apps to compete and it has not boosted Shazam's usage.

6. CONCLUSION

(46) The Decision concludes that the Transaction would not significantly impede effective competition in the internal market or in a substantial part of it.

(47) Consequently, the Decision declares the Transaction compatible with the internal market, in accordance with Articles 2(2) and Article 8(1) of the Merger Regulation.

(1) OJ L 24, 29.1.2004, p. 1.

(2) The Transaction was notified to the Federal competition authority of Austria on 12 December 2017.

(3) OJ C 106, 21.3.2018, p. 16.

(4) Shazam develops ACR software solutions to power its music recognition apps.

(5) Commission decision of 15 June 2015 in case M.6800 — PRRfM/STIM/GEMA/JV, recital 113 and footnote 85.

(6) Apple has already information on who the customers of competing providers of digital music streaming apps are on iOS.

(7) Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of concentrations between undertakings (‘Non-Horizontal Merger Guidelines’) (OJ C 265, 18.10.2008, p. 6).