COMPETITION IN DIGITAL MARKETS

Brazilian Antitrust and Vertical Integration in Streaming Platforms

A brief look into competition in streaming platforms in Brazil.

Juliana Novaes

September 21, 2022

Brazil is a large middle-income country facing many of the economic challenges of developing nations. Its antitrust ecosystem is structured around an independent authority called  Administrative Council of Economic Defense (CADE), which was formally established in the second half of the 20th century.

During its relatively short existence, CADE has built a consistent history of competition law and enforcement, having decided on cases that concern different sectors of the economy. Recently, new cases have been brought up in the antitrust ecosystem in Brazil, many of them inserted into digital markets and the technology industry as a whole, challenging the traditional approaches to antitrust and shedding light to the whole of the agency in the Digital Era.

This article will present a brief overview of the antitrust system in Brazil and review a case in the digital entertainment context, tracing a parallel between the case and the current trends of vertical integration involving online streaming services.

A brief overview of antitrust in Brazil 

In Brazil, competition law evolved along with Constitutions. In the beginning, a clear rule of economic liberalism was foreseen, with full exercise of property rights. Subsequently, the State became no longer a simple enabler of economic activity, but started to have a more active role in organizing and ruling the behavior of economic agents.

The antitrust authority in Brazil (CADE) was formally created in 1962, but only in 1994 it became an independent agency working together with other regulatory bodies responsible for competition law and policy enforcement, investigating and judging violations to the economic order, as well as analyzing acts of economic concentration.

The “Claro-iMusica” Case 

Over the last few years, the music market has undergone a great transformation. The way to consume music has mostly gone digital and platforms were created for the intermediation between the user and music, through downloading and streaming.  The Brazilian digital music market is the 10th income music market according to the International Federation of the Phonographic Industry ("IFPI"). Listening to digital music is part of the Brazilian way of life and, in 2019, 34% of Brazilians  listened to songs on the internet every day, or almost every day.

It is in this context of growing importance of digital platforms that the Claro-iMusica case emerged in 2014, still in the early stages of large platforms such as Spotify.  The case started when Claro S.A., a telecommunications company of the Mexican-origin group América Móvil, decided to acquire iMusica S.A., a digital music company (download and streaming) controlled by the Brazilian group Ideasnet and with a significant market share at the time. 

The acquisition was presented as an opportunity to generate gains in agility in offering new products to consumers, as well as to facilitate logistics in digital music sales. However, considering the fact that Claro is a company that provides telecommunications services and iMusica is an aggregator and develops white-label streaming platforms, the acquisition represented a vertical integration. 

Vertical integrations in digital entertainment markets are a subject of concern, especially when they involve companies in the telecommunications sector, due to the essentiality of such providers to the infrastructure that is involved in digital services, which puts them in a privileged position to conduct discriminatory practices and pose entry barriers to other market competitors. 

In this sense, concerns were presented by other competitors, such as other telecommunications corporations, who had contracts with iMusica and alleged that, following the approval by CADE, iMusica would then refuse future contracts with other competitors and significantly compromise the variety and quality of the content offered to them. At the same time, other companies in the music aggregation sector were concerned that exclusivity contracts would be formed by Claro-iMusic with artists and relevant record labels, significantly reducing competitors’ capacity to offer varied and high-quality content for their remaining clients. 

However, after analyzing the case, it was understood that, despite the high market share of both companies, other competitors would be able to replace their role in case there was refusal to contract. The outcome was an approval. 

Why is this case relevant?

Although the case itself led to an approval from the Brazilian authority without much controversy due to the existence of other competitors in the market at the time, this case is relevant as it represents one of the first deep looks into digital platforms and the streaming ecosystem by CADE. 

The Claro-iMusic case is dated from 2014, but the discussions regarding antitrust in the streaming market are still in trend as the international market is currently facing a move towards vertical integrations. Companies in the telecommunications sector have massively invested in creating their own streaming platforms and joining other traditional media conglomerates to enter the digital market. This is the case, for instance, with the recent announcement that AT&T is to combine WarnerMedia business with Discovery in a deal to create a new streaming service.

At the same time, Spotify and Netflix, which have a significant market share, have become much more than intermediaries in the last few years and are progressively turning their businesses vertical. For instance, Spotify - representing 320 million total monthly active users-  has recently spent almost $900 million on exclusive content. From the audiovisual streaming perspective, Netflix - the leading platform - has invested over 17 billion in content creation in 2021.

We see, therefore, that vertical integrations in the digital entertainment market are becoming increasingly common. There are concerns that this trend might raise entry barriers and originate discriminatory conducts from the players in this market, with special concern to vertical integrations that involve companies that have control over Internet infrastructure. 

In this sense, the Brazilian case  represents a small insight from an acquisition from a past not so far away that involved what now represents a trend in the digital entertainment industry and whose long-term consequences for other competitors and also for consumers is still unknown.

Juliana Novaes is a Law Student at the University of Sao Paulo also enrolled in a double-degree program at the University of Lyon. She is a researcher in the law and technology field and a digital rights activist. She is currently part of the Directive Council of the Internet Society’s Youth Observatory (Youth SIG) and is an Internet of Rights Fellow at ARTICLE 19. Her main topics of interest are infrastructure regulation, digital economy and freedom of expression.