Today, I am delighted to interview my friend Horacio Gutierrez, Spotify’s Head of Global Affairs and Chief Legal Officer. Just as the Commission launched its public consultation on the DSA package, it is a great time to discuss with Horacio the future of innovation, competition and regulation in digital markets.
Horacio, could you tell us a bit about your current functions at Spotify?
Of course. I currently serve as Spotify’s Head of Global Affairs and Chief Legal Officer, after working for almost four years as Spotify’s General Counsel. Global Affairs encompasses the content licensing, corporate communications, government affairs, legal affairs, trust and safety, and strategy and operations teams. Together, we are responsible for helping ensure Spotify is a safe platform that is true to our values as a company. Our work also entails helping the company think about and weigh in on public policies and rules that will increase trust and innovation in our industry. We brought these teams together at the end of last year as a way to ensure that, as we continue to grow Spotify into the first truly global audio network, we can make the best decisions possible by grounding our thinking in our values and in the needs of our stakeholders and of society. Today, there are a lot of hard questions to answer. And the world now is asking tech companies, which wield tremendous influence, to exercise that influence with an equally great sense of responsibility.
Spotify is often cited as a success story for European tech. Could you tell us about the company, its history and its future direction?
Our CEO and founder, Daniel Ek, came up with the idea for Spotify in 2002, after Napster was shut down, because he understood that the music industry’s internet piracy problem was not going to be solved just through legal enforcement. Daniel has been quoted as saying that, at the time, he thought “the only way to solve the problem is to create a service that is better than piracy and at the same time compensates the music industry.”
Spotify was born out of two fundamental innovations: a technological innovation and a business model innovation. The technological innovation that allowed Spotify to create a “better product than piracy” was to make streaming so fast that users wouldn’t even notice load time. That sense of ‘immediacy’ changed the game for streaming.
The business model innovation was to shift the paradigm from music “ownership,” where users purchased and downloaded tracks, to music “access”, which gave users on-demand access to the world’s entire music catalog virtually and fully licensed.
Other important innovations have followed since then. We adopted a ‘freemium’ model by launching an ad-funded tier, available to the user for free. And since then, we have continued to innovate on playlists, discovery, and personalization, using advanced machine learning techniques.
The resulting impact that Spotify has had is something we are very proud of. The entire industry is now healthier than it has been in years, thanks primarily to the success of streaming.
In terms of the future, we announced last year an expanded vision for Spotify, one that includes not just music, but also other forms of audio, like podcasts. Podcasts obviously have become a really important new medium for consumers of audio around the world. We’re still in the early innings of this strategy, but we’re making great progress and continuing to invest to grow Spotify in markets around the world.
Spotify’s complaint against Apple drew a lot of attention when it was filed. Could you remind us why you filed that complaint? Could you say a word on the progress of DG COMP on your case?
We filed our complaint before the European Commission because Apple’s anticompetitive practices tilt the playing field to favor its own services at the expense of consumers and competitors. We want fair competition and for Spotify users to enjoy the best experience, free from arbitrary obstacles created by Apple. We hope that the Commission will launch a formal investigation soon.
There have been a lot of discussions these past few years about digital platforms, their benefits, but also their potentially harmful behavior. Do you think that there is a platform “problem”?
Digital platforms are at the heart of today’s digital economy, playing an important role in connecting businesses and consumers and creating commercial opportunities. At the same time, platforms should operate to promote innovation, competition and consumer choice. In recent years, it has become clear that this is not always the case. Certain platforms, enabled by strong network effects and large economies of scale, unfairly leverage their market power in ways that are contrary to these goals, and serve their own commercial interests to the detriment of business and individual users.
There are extensive discussions in EU circles about the possibility to complement EU competition law by some ex ante regulation. Do you agree there is such a need? And did you have a chance to look at the public consultation that has just been released by the Commission?
Competition law is a great tool and the European Commission has done a lot to protect competition in technology markets. However, when harmful practices occur in a fast-moving digital market, ex-post intervention may be too late and may be too slow to avoid serious (often irreparable) harm to competition. In addition, some problematic practices may not necessarily fall within the current scope of competition law, but nevertheless prejudice market fairness and innovation and need proper redress.
Due to the speed of development of digital markets, it is essential to address some problems before abusive conducts are cemented and markets tip. This requires swift intervention on the basis of clear pre-established rules, and effective remedies. I have said in the past that the failure to do this runs the risk of turning competition enforcement efforts, no matter how valiant, into a kind of archeological expedition, where enforcers dig up the bones of a dinosaur and try to determine whether a meteor or another dinosaur killed it. By then the harm to competition in the market is irreparable. The health of the digital markets is simply too important for corrective action not to be taken before the harm is already done, and the tools available to the competition authority should be supplemented by ex ante measures in order to facilitate timely and effective intervention.
There can also be situations where certain unfair practices have become widespread in the market, in which case a more systematic approach, rather than a case-by-case approach, is the appropriate response. In this case too ex ante regulation would also be an appropriate tool to address the situation.
Of course, these new powers should always be exercised with prudence, but such is the case of all enforcement powers conferred to a regulatory agency.
I have seen the public consultation published today by the Commission, but it is too early for me to comment on it. My team and I will reflect on the questions raised in this document and the various approaches proposed, and do our best to assist the Commission in providing valuable input. I hope many other companies will contribute.
One important question is, of course, which digital platforms should be subject to ex ante regulation. Do you have a view on that?
Although Spotify has some issues with Apple, harmful practices are not limited to a particular platform, and do not affect Spotify only. In order to ensure legal certainty, it would be useful for the Commission to come up with a list of criteria that can be used to determine the digital platforms that will be subject to ex ante regulation. For instance, the following features could be taken into account to identify the platforms subject to regulation: presence of strong network effects and large economies of scale, the ability to act as private gatekeepers to critical online services for an exceptionally large population of private and business users, and the ability to leverage market power from one market to another.
At the end of the day, it is important that the scope of this regulation is neither under-inclusive, nor over-inclusive, as there is no need to burden with regulatory requirements a wide range of platforms whose ability to engage in harmful practices is small or inexistent. I realize that the “devil is in the details”, as they say. This is why a robust consultation process will be undertaken and we hope it will result in a balanced, but effective, regulatory tool.
Various regulatory approaches have been suggested. For instance, some have suggested that this ex ante regime should be based on the EU telecoms regulatory framework. Do you agree with that approach?
It is hard to comment in the abstract, but in general, our concern with an approach based on the EU telecoms regulatory framework is that it would take years of work to be put into place (while time is of the essence) and the risk is that such a regime might be heavy by imposing excessively granular obligations on market actors. In addition, the telecoms framework is essentially implemented at the national level, so we also run the risk of a fragmented approach to what are, essentially, global platforms. In this regard online platforms are fundamentally different from telecom operators whose history traces back to long-established legal monopolies at the national level. In order to achieve the desired efficiency and effectiveness, we prefer a regime where the Commission has a significant role to play, by for instance being in charge of identifying the platforms that will be subject to ex ante regulation and taking an active role in enforcement.
But above all, what we need is a regulatory instrument that can be launched rapidly and which is simple in that it clearly identifies the practices that are allowed and those that should be prohibited (as the market needs to know what it can and cannot do). This instrument should also provide for accelerated investigations and speedy procedures, and provide timely remedies aimed at changing harmful behaviors (rather than imposing monetary penalties).
I also think we don’t need to reinvent the wheel and create new super-regulators at EU or national level as this would be costly, raise political obstacles and it would take years to establish these new institutions. We should rely on existing institutions and provide them with new tools and procedures.
The European Commission has also published today an inception impact assessment document, as well as an open public consultation inviting comments on exploring the need for a possible new competition tool that would allow addressing structural competition problems in a timely and effective manner. Do you think the Commission should be provided with new enforcement tools?
I believe that DG COMP should have the right set of tools to promote innovation, competition and consumer choice. I believe the current set of tools available to DG COMP should be expanded and I agree with the view that an instrument (which is referred as a “New Competition Tool”) may be needed to address structural competition problems across markets – such as those created by some digital platforms – which cannot be tackled or addressed in the most effective manner on the basis of the current competition rules with the risk of market tipping. We will consider the various options discussed in the Inception Impact Assessment document and provide input, as I’m sure others will too.
How do you see the relationship between competition law and ex ante regulation going forward? Will DG COMP lose its leadership in tech matters?
I see competition law and ex ante regulation as complementary tools. Thus, I don’t see why DG COMP’s essential role in tech matters should be diminished. Even if an ex ante regime is adopted, there will still be a need for competition investigations as not all behaviors can be captured by regulation. The advantage of competition rules is that they are flexible and thus can be applied to a wide range of situations. Moreover, the New Competition Tool that might be granted to DG COMP would also strengthen its role and ability to intervene when needed. DG COMP will no doubt continue to play a critical role.
Do you have any final observations?
Yes, the digital economy is at a critical juncture, and an ambitious response from the EU to unfair practices is of paramount importance. We must seize this opportunity to make a difference, before it’s too late.