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A preliminary damages model.
Gracenote, which was acquired by audience measurement firm Nielsen in 2017, is a provider of entertainment metadata. It maintains databases containing detailed information about TV shows, films, sports, and music tracks. A recent newsletter1 reported that Gracenote may be engaging in anticompetitive conduct by imposing exclusivity requirements on customers to which it licenses data. Reports also suggest that Nielsen may be engaging in exclusionary conduct by refusing to provide Gracenote metadata to its competitors.2
Gracenote provides program listings to nearly every major pay TV company in the U.S. and is rumored to have a market share of 60%.3 This aligns with our preliminary analysis, in addition to an article which references Nielsen’s “market dominance” in content metadata.4
Source: Fideres analysisGracenote licenses its data to customers which include streaming service providers, automakers, and consumer electronics manufacturers. The data is used to enhance user interfaces for platforms and devices. For example, in the context of in-car entertainment, Gracenote uses automatic content recognition (ACR) technology to identify music playing from sources such as radio or streaming services. It detects the “fingerprint” of the audio and matches it with the corresponding song in its database. Music-related information such as song title, artist name and album art are then displayed on the car’s infotainment screen.5
Metadata is essentially “data about data.”6 In the context of music, there are three types of metadata: descriptive metadata (e.g. song title, release date, artist name and album art); ownership metadata (detailing contractual arrangements between artists, songwriters and producers for purposes of royalty calculation); and recommendation metadata (mood labels describing how the music sounds that can be used to enhance music discovery).7 Metadata can be used to deliver personalized content experiences. For example, TV show metadata can include “descriptors” (e.g., “Friendship”, “Cafes”) which can be used to recommend similar programs that audiences might be interested in.8 In the context of TV shows and movies, metadata can include episode titles, names of actors, episode descriptions, and banner images for programs.9
Companies providing entertainment metadata services may have different areas of focus within entertainment metadata (e.g., music, sport, video). Likewise, licensees have different data requirements. For example, an auto manufacturer that requires music metadata for its in-car entertainment system would likely not consider TV and movie metadata to be a viable substitute. Similarly, a streaming service provider that requires TV and movie metadata would likely not consider music metadata to be a suitable alternative.
Consumer-facing products such as Shazam (an app which allows consumers to identify music) are also unlikely to constrain Gracenote and hence to be part of the relevant market. Shazam instead operates in the “market for music recognition apps”.10 Gracenote, in contrast, does not offer apps or software solutions for consumers.11 Crucially, it does not appear that Shazam licenses its data, which we consider to be key to the market definition. With this in mind, and adopting the standard hypothetical monopolist test, we therefore consider the relevant market to be the market for entertainment metadata services, with different sub-segments for different areas of focus (e.g. music, TV, movie and sport).
As one forum user notes, “the results from four databases are much better than one.”12 However Gracenote appears to impose exclusivity requirements on licensees through restrictive contractual obligations, which prevent licensees from:
These restrictions are applied through a Licensed Data Agreement, such as that between Gracenote and FreeCast, which prohibits “splitting up” the Gracenote data by separating images from their accompanying editorial text:
“Licensee shall not… use any image or photograph contained within the Licensed Data outside or independent of the accompanying editorial text and program information with which it is provided.”13
In theory, purchasers might license Gracenote while also licensing additional metadata providers. However, in practice, this restriction can prohibit the integration of Gracenote metadata with metadata from other databases that purchasers might license, with the effect that licensees cannot use data from other vendors and Gracenote at the same time. These restrictions therefore indirectly amount to an exclusive dealing clause that allows Gracenote to maintain its monopoly power by foreclosing competition.
For example, in video entertainment, a streaming platform with a Gracenote license might use the Gracenote metadata to improve their recommendation algorithm. However, the platform would not be able to combine this with enhanced metadata (e.g. cast demographics or expanded synopsis) from a provider like TiVo (Gracenote’s main competitor), since this would require the Gracenote metadata to be used outside of the accompanying text they supply. This inability to combine the Gracenote metadata with the metadata from TiVo would then foreclose the opportunity for the latter to compete.
This impact is recognized by users who report that “Gracenote will only license if we drop all the other databases, they will not allow to be combined with others.”14 This appears to allow Gracenote to sustain supra-competitive prices for its metadata licenses (while also suppressing quality and innovation).
Indeed, Gracenote has previously attempted to exclude rivals by suing clients who switched to competing providers. In 2001, Gracenote filed a lawsuit against Roxio, a DVD burning software, for switching to Freedb.15 The lawsuit ended in an agreement for Roxio to return to Gracenote.16
Gracenote’s conduct has implications across a range of purchasers in the digital entertainment industry. Potential plaintiffs might include the following categories:
Around 300 million cars worldwide are powered by Gracenote’s music recognition technology.17 Gracenote’s technology has been used by several car makers including Volvo, Land Rover, Toyota, Audi, and Hyundai.18 Car manufacturers may have been harmed if Gracenote’s pricing is higher due to its dominant market position. Moreover, if manufacturers were able to source metadata from multiple providers, they may be able to achieve enhanced functionality at lower costs. According to one article, adding Gracenote can cost auto manufacturers $20 per car.19
Gracenote licenses its data to streaming service providers such as: Spotify, Apple Music, and Prime Music, (music); Comcast, Disney, Tubi, Roku, and DirecTV (TV / Video); and DAZN (sports).20 Competition to offer metadata to streaming services would reduce prices and improve dataset quality.
Metadata providers competing with Gracenote, such as Reelgood, are harmed by its exclusionary conduct. Gracenote’s conduct results in competitors being unable to effectively contest Gracenote’s monopoly and deprives them of potential revenue they could gain in a competitive market.
Based on Gracenote’s U.S. revenue ($787 million in 2021)21 and estimated market share of at least 60%, we infer a market size of around $1.3 billion.
It appears that the conduct goes back to at least early 2019, given the date of the Licensed Data Agreement (March 2019).22
As a result of Gracenote’s business-to-business pricing model, pricing data is very limited. Under the Licensed Data Agreement, FreeCast pays Gracenote a monthly license fee of $5,210, which increases to $7,500 for over 750,000 monthly active users, and by 5% every year. This is higher than the fee that FreeCast pays to Reelgood (a minimum monthly fee of $5,000, which fluctuates depending on data requested).23
According to one source, FreeCast had 436,028 subscribers in 2021.24 Based on this, we can estimate that Gracenote’s fees are at least 4% more expensive than competitors’ fees. However the overcharge is likely closer to 33% as when the active user threshold is crossed Gracenote charges $7,500 per month. If we consider the 5% annual increase, the overcharge might reach 50% for clients with licenses for around 5 years. Indeed, the threshold is likely to have been exceeded for most licensees, as many of Gracenote’s major clients have over 750,000 monthly users. For example, Spotify has over 100 million users in the U.S.,25 Apple Music has over 30 million U.S. listeners,26 and DirecTV has around 11 million subscribers in the U.S.27
Therefore, applying the overcharge percentages of 33% to Gracenote’s U.S. Impact / Content revenue of $787 million gives an estimated aggregate overcharge in the region of $260 million in 2021. Total damages for a class of licensees for the 2020 to 2024 period are in the region of $1 billion.
1 https://www.thebignewsletter.com/p/economic-termites-are-everywhere
3 https://www.thebignewsletter.com/p/economic-termites-are-everywhere; https://www.streamtvinsider.com/cable/comcast-replaces-tivo-rovi-gracenote-for-metadata
5 https://gearshifters.org/toyota/what-is-toyota-gracenote/; https://www.nielsen.com/solutions/content-metadata/music-recognition/
6 https://guides.library.cmu.edu/Metadata
7 https://soundcharts.com/blog/music-metadata
8 https://www.nielsen.com/insights/2023/media-metadata-success-in-streaming/
10 https://ec.europa.eu/competition/mergers/cases/decisions/m8788_1279_3.pdf, p. 58.
11 https://ec.europa.eu/competition/mergers/cases/decisions/m8788_1279_3.pdf, p. 16, fn. 44.
12 https://www.thebignewsletter.com/p/economic-termites-are-everywhere
13 https://contracts.justia.com/companies/freecast-inc-10029/contract/111196/, ¶ 1(b).
14 https://www.thebignewsletter.com/p/economic-termites-are-everywhere
15 https://web.archive.org/web/20010604032116/https://gracenote.com/press/2001051000.html
16 https://www.theregister.com/2002/01/15/roxio_mulls_easy_litigation/
17 https://gracenote.com/about-us/
18 https://www.volvocars.com/en-om/support/car/xc40-recharge-plug-in-hybrid/article/9b62c5b79dd1be94c0a801515d3ff34a; https://www.ownerinfo.landrover.com/document/3D/2021/1656959/proc/G2390281/G2525692; https://gracenote.com/segments/streaming-platform/
19 https://www.treehugger.com/why-your-car-cant-read-your-cd-tracks-4868632
20 https://gracenote.com/segments/streaming-platform/
21 Nielsen’s business consists of two major product categories: “Measurement” (measuring TV audiences) and “Impact / Content” (which includes Gracenote Content Solutions). We consider “Impact / Content” to be the relevant segment here. Impact / Content revenue was $955 million in 2021. 82% of overall revenue was attributable to the U.S. Therefore, U.S. Impact / Content revenue can be estimated at $787 million.
23 https://www.sec.gov/Archives/edgar/data/1633369/000101376224000771/ea0209834-s1a3_freecast.htm; https://www.sec.gov/Archives/edgar/data/1633369/000121390023086181/ea187955ex10-12_freecast.htm
24 https://expandedramblings.com/index.php/freecast/?utm_content=cmp-true
25 https://www.businessofapps.com/data/spotify-statistics/
26 https://www.emarketer.com/content/apple-music-continues-to-grow-should-marketers-be-worried
27 https://www.statista.com/statistics/497288/directv-number-video-subscribers-usa/
Emily joined Fideres in December 2020. She holds a degree in Music from Durham University and went on to complete her Law degree at The College of Law in London. After graduating, Emily gained litigation support experience at an international law firm in London. Prior to joining Fideres, she worked as a paralegal at a law firm in New York City, where she was involved in a securities litigation and assisted with a number of blog posts covering trends in the credit markets.
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