HomeInsightsCompetition and Markets Authority publishes response to Digital, Culture, Media and Sport Select Committee’s report on the “Economics of Music Streaming”

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In its response, the CMA acknowledges the Committee’s recommendation for a market study into the dominance of the major music groups (see item above) and says that it is liaising with relevant Departments on the issue.

The remainder of the CMA’s response addresses the Committee’s recommendation that “the CMA should consider exploring designating YouTube’s streaming services as having strategic market status to encourage competition with its products”.

The CMA notes that the proposed new pro-competition regime for digital markets to be operated by the Digital Markets Unit (DMU) within the CMA has not yet been finalised and is currently the subject of a consultation that ends on 1 October 2021.

In terms of “strategic market status” (SMS), the CMA notes that the assessment mechanism for designation is being consulted on, including whether it should be activities-focused without a formal market definition (which is the Government’s preferred approach) or whether a formal market definition should be undertaken.

Under the proposals, SMS designation would involve three main components: (i) a code of conduct; (ii) pro-competitive interventions (PCIS) by the DMU; and (iii) distinct merger rules. The SMS designation would apply to the whole company, but the code of conduct would apply only in connection with particular designated activities (for example Facebook’s social media platforms) to ensure that the regime is proportionate and targeted at the activities which may cause most harm. PCIs would also generally relate to the designated activity but may also be implemented in relation to a non-designated activity, provided the intervention is made in relation to a concern in a designated activity.

The CMA says that in its July 2020 market study into online platforms and digital advertising, it considered that Google, which owns YouTube, would be likely to be designated as having SMS in relation to its activity in open display advertising. The CMA would need to carry out a separate assessment as to whether Google may have SMS in any other separate activity. The CMA’s understanding is that the concerns relating to the advantages that YouTube may derive from the “safe harbour” regime are not primarily market power concerns but relate to market distortions and the music streaming “value gap” under the current copyright regime. The CMA suggests that these may be better addressed by revising the copyright obligations that apply to user-generated content.

The CMA notes also that the SMS regime may also enable the DMU to impose PCIs in activities outside the SMS designated activity in certain circumstances but only where it is intended to address concerns in the SMS-designated activity.

However, the consultation is still ongoing and the DMU currently only exists in shadow form within the CMA, meaning that there is currently no mechanism to designate firms as having SMS. Therefore, while the legislation is still under development, the CMA cannot consider designating YouTube’s streaming service as having SMS. The CMA says, however, that it is grateful to the Committee for the evidence it has presented on these important issues, and it will draw on it at such point that the new digital markets framework comes into force. To read the Committee’s news release click here and to read the CMA’s response in full, click here.

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