European Commission prepares to assess Apple’s acquisition of Shazam

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News of Apple’s acquisition of music-recognition app Shazam has made waves not only in the music world, but in government as well.

In February, a few months after Apple officially confirmed the deal, the European Commission officially accepted a request from member nations Austria, France, Iceland, Italy, Norway, Spain, and Sweden to assess the proposed acquisition. The examination will seek to determine whether or not the acquisition will “threaten to adversely affect competition,” something American tech companies are often accused of in Europe.

On April 23, the Commission has confirmed in a press release the opening of an “in-depth investigation to assess the proposed acquisition of Shazam by Apple under the EU Merger Regulation.” Noting that it has concerns that the deal would reduce choice for users of music streaming services, the regulatory body is seeking to determine whether the merger will help Apple steer listeners away from other streaming services, establishing a sort of monopoly on the industry in the continent.

“The way people listen to music has changed significantly in recent years, with more and more Europeans using music streaming services,” Commissioner Margrethe Vestager said. “Our investigation aims to ensure that music fans will continue to enjoy attractive music streaming offers and won’t face less choice as a result of this proposed merger.”

Apple’s purchase of Shazam is the latest acquisition for the world’s largest tech company.  

First launched in 2002, Shazam has grown significantly over the last several years. Once specifically devoted to music recognition, Shazam now accepts audio and visual clips to identify songs, movies, and television shows. The service is the oldest of its kind, and competes with Soundhound and Musixmatch.

“We are thrilled that Shazam and its talented team will be joining Apple,” Apple spokesperson Tom Neumayr told BuzzFeed News at the time of the acquisition. “Since the launch of the App Store, Shazam has consistently ranked as one of the most popular apps for iOS. Today, it’s used by hundreds of millions of people around the world, across multiple platforms.”

While the acquisition price has not been publicly announced, Apple reportedly paid around $400 million for the company. This estimate falls far below Shazam’s $1 billion valuation from its last funding round in 2015. The discrepancy is likely due to Shazam’s struggle to become profitable.

In 2015, Shazam posted an annual loss of $22 million. The company saw a major turnaround in 2016, with revenues of $54 million, and became profitable for the first time with a pretax loss of $5.3 million. Earlier in 2017, Shazam CEO Rich Riley hinted that the company’s ability to become profitable could make it an attractive acquisition target.

A big part of Shazam’s turnaround is due to its feature diversification. In earlier incarnations, Shazam made money primarily from advertising revenues and linking customers to services like Apple Music. In 2016, the company added a new augmented reality feature, allowing users to scan branded Shazam codes to unlock deals and games on the app.

The new features allow Shazam to build more strategic partnerships and drive engagement with the app. Earlier in 2017, the company partnered with spirits company Beam Suntory, maker of Jim Beam, Sauza, and Hornitos tequila, to create a wildly successful AR marketing campaign. Since its partnership with Beam, Shazam has partnered with a number of other companies and artists to create similar AR campaigns within the app.

Exactly what Apple plans to do with Shazam is unclear. Apple frequently purchases smaller tech companies to scrape the technology for its own products, but Shazam has technically been baked into Siri for quite some time. You can ask Siri to “Shazam this song,” or even simply ask the voice assistant, “What’s this song,” and the feature is powered by Shazam. Apple could remove Shazam’s branding and bake the feature fully into iOS, or create tighter integration with Apple Music. It’s unclear if this spells doom for Shazam’s Android app

The European Commission, however, is concerned that Apple may use Shazam to access “commercially sensitive data about customers of its competitors.” This, the Commission says, could help Apple target competitors’ listeners and encourage them to switch platforms, placing these other music providers at a competitive disadvantage.

The Commission now has 90 working days, or until September 4, 2018, to make a decision. It is not entirely clear what Apple will be required to do should the decision come back not in favor of the tech giant, but we’ll just have to wait and see how this latest courtroom drama plays out. 

Updated on April 23: The European Commission has opened an in-depth investigation over the acquisition.