The European Commission (Commission) has launched a probe on the impending Apple’s acquisition of Shazam. The regulator is wary that the proposed merger would reduce options for consumers to subscribe to music streaming services in the region. It has set a deadline of 4th September to come up with a conclusion, delaying the approval by four months.
Last December, Apple (AAPL) announced the acquisition of London-based Shazam, which is offering music recognition service to its users. The deal was touted to be worth $400 million and was a strategic fit for Apple’s streaming service Apple Music. Just two months after the deal was announced, few members of the European Union (Austria, France, Iceland, Italy, Norway, Spain, and Sweden) has asked the Commission to look into the deal as they were worried that the deal could give Apple a clear edge at the dismay of its competitors.
The regulator is going to look at two main issues regarding the deal. First point of contention is that post the deal Apple would get access to “commercially sensitive data” from Shazam of its competitors. It also added that this might help the Cupertino-based firm to lure consumers from its competitors (Spotify) to Apple Music, which would make life tougher for streaming providers.
The second issue is relating to the referral system offered by Shazam now. Based on the music clips captured, the app directs users to its partner sites where they can download and listen to them at their comfort. Shazam is currently integrated with Apple Music, Spotify (SPOT), Tidal, Deezer, and Google Play Music.
On a daily basis, the music recognition app used to send 1 million referrals to its partners, which includes Apple Music and Spotify. The watchdog is worried that post the merger, Apple could completely do away with the referral system, which could give Apple Music an unduly advantage compared to others. To put things in perspective, Spotify has 71 million paid users as per its IPO filing and Apple Music, as of April, is touted to be having 40 million paid customers.
Apple is yet to announce its future plans post the merger. As noted by the regulator, it could put an end to the referral system and point users only to Apple Music. There is also another option to pull out Shazam’s Android app. From the regulator’s point of view, post the probe, it could either approve the deal with no strings attached or it could approve it with certain conditions where Apple needs to continue the referral system with other providers or in the worst-case scenario, it might block the deal.
Apple is scheduled to announce its second quarter results on May 1, post the closing bell.