TheChek News Flow

America’s new antitrust agenda

Democratic hopefuls are making the case for action against Big Tech

Facebook reminds me of nothing so much as kudzu, an indomitable creeping vine which can be chopped, mowed, sprayed with herbicide or even set on fire, and yet will keep growing, suffocating everything to which it attaches itself. Each week seems to bring a new scandal for the social media company, yet it just beat estimates on revenue, earnings and growth, making more per user than it ever has before.

But US lawmakers are preparing to do what the most aggressive gardeners do to kudzu — inject poison into the roots. Last week, following new revelations about how the company had lured people aged between 13 and 35 into selling their privacy so that Facebook could harvest more of their personal data, Senator Mark Warner announced he had “begun working on legislation that would require large platforms such as Facebook to provide users, on a continual basis, with an estimate of the overall value of their data to the service provider”.

This is a big deal, and an important new strategic twist in the battle between Big Tech and regulators. User data are the most valuable commodity for companies such as Facebook, or indeed any company in the digital economy. But its value is fully known only to the companies that harvest it. The Warner proposal aims to create the sort of transparency that might give users pause. If you knew, for example, that Facebook or Google were earning twice as much from your data this year as they did last year, but offering no better service in return, you might be more inclined to think about switching to a platform that gave you more.

That, of course, presupposes the existence of viable competitors to the current handful of platform giants — which is another thing that putting a price on data could facilitate. The antitrust conversation is heating up in the US: there is growing interest in the topic within not only the Federal Trade Commission and the Department of Justice, but also Congress, where the House subcommittee on antitrust may begin looking at platform competition issues soon.

But monopoly policy in America is currently driven by “Chicago School” thinking, which espouses the idea that as long as consumers aren’t paying too much for a good or service, all is well. Members of the “New Brandeis” school of thought, including the legal scholar Lina Khan (who recently consulted at the FTC) and Big Tech critic Barry Lynn, who runs the influential Open Markets Institute (which has advised presidential candidate Elizabeth Warren), disagree. They would like to take antitrust policy back to a broader interpretation of political power, in which societal welfare, rather than just that of consumers, is taken into account. This makes a lot of sense in an era in which the big technology companies, who have blanketed Washington with money and lobbyists, are exerting kudzu-like control over the political economy.

However, it’s a slow burn solution that will require time and case law to develop. In the meantime, putting a price on data, or at least treating it as a core asset for companies, could allow regulators to build an antitrust case by proving that platforms like Facebook, Google or Amazon have actually harmed consumers by taking disproportionately more value than they give.

In his new book Zucked, Roger McNamee, a Facebook seed investor turned Big Tech critic, lays out how this might work, using Google as the proxy. “Each new search, email message, or map query generates appropriately the same form of value to the user,” Mr McNamee writes. “Meanwhile, Google receives at least three forms of value: whatever value it can extract from that data point through advertising, the geometric increase in advertising value from combining data sets, and new use cases for user data made possible by combining data sets.”

That is what allows them to send you targeted advertising with all the precision of a drone strike, something that businesses of all kinds pay dearly for. Mr McNamee concludes that consumers are giving up far more in data value than they receive. If data were dollars (which, of course, they are) “the Chicago School would find that situation to be in violation of its antitrust philosophy”.

Facebook and Google would argue that consumers are not troubled by any of this. But consumers are not troubled by many things — predatory subprime mortgages, say, or algorithmic credit biases — until the full implications of these things are understood. I suspect that if we all knew how precisely we are being tracked and how richly we are being monetised by the platform tech companies, there would be more of a public outcry.

Academics are busy working out how to price data fairly (Mr Warner’s legislation would give the Public Company Accounting Oversight Board that task). Meanwhile, Big Tech antitrust issues have already become a litmus test for Democratic presidential candidates in 2020. Ms Warren has made the topic a central part of her platform, while Kamala Harris came under fire recently for not addressing it adequately. And Cory Booker has said: “I think the US government absolutely should take a look at Google.” One way or another, I suspect it will

China is an important factor but temporary shocks are another cause

The slowdown in the eurozone economy, which started early in 2018 after a booming 2017, has now become rather troubling. Italy has recorded two successive quarters of negative growth, France slipped towards stagnation in December owing to the gilets jaunes protests and, most worrying of all, Germany seems to have avoided a “technical” recession only by a decimal point or two in the final quarter of last year.

The German situation is highly unusual. Normally immune to the confidence and credit shocks that have plagued other eurozone economies, Germany has apparently needed tighter, not easier, monetary policy for several years. But, in recent months, the slowdown in Germany has been much greater than would have been expected, given the behaviour of the rest of the European economy.

Why has this happened? And does the surprising weakness in Europe’s strongest economy suggest that the ECB should now be easing monetary policy for the entire eurozone?

The central bank has been very clear that the main drag on the economy since mid 2018 has come from contractionary foreign shocks. One factor has been the tightening in global financial conditions which followed increases in US policy rates. This tightening will now be reversed, given the sudden and substantial pivot towards more dovish policy guidance by the Federal Open Market Committee this month. 

In addition, there has been a downward shock from foreign trade, triggered by the impact of deleveraging on the Chinese economy, and also the widespread effects of US-China trade wars on business confidence. These adverse foreign trade developments persuaded the ECB to tilt the risks around its global growth outlook from balanced to downwards-biased in its latest meeting.

The ECB is right to blame foreign developments for the slowdown. Domestic demand in the eurozone still looks firm, with consumer spending benefiting from a buoyant labour market and rising real incomes. Meanwhile, the provision of bank loans to businesses and households continues to rise in a healthy fashion.

According to econometric models estimated in Fulcrum (see box below), the slowdown in eurozone growth in the last 12 months has been very close to what would have been expected, given the weakness in the Chinese economy. 

However, the downturn in the German economy has been considerably greater than seems consistent with the China factor. This remains the case, even after allowing for the fact that Germany is usually thought to be more sensitive to the economic cycle in China than are other European economies. In fact, German activity growth is a full percentage point lower than it “should” be, based on normal links with China.

The idiosyncratic slowdown in Germany is probably due to a concentration of one-off shocks that have occurred in important industrial sectors. These shocks are unconnected to macro-economic fundamentals and they should automatically reverse fairly soon.

According to some excellent detective work by Greg Fuzesi at JP Morgan, the three sectors affected are as follows:

* Motor vehicles output collapsed in 2018 Q3 because of the slow implementation of new regulatory checks on auto emissions, and has not yet fully recovered;

* Chemicals output fell sharply in 2018 Q4 because of water shortages in the Rhine following the dry summer, making barge transportation on the river extremely difficult, and restricting water provision to factories. This situation improved in December. 

* Pharmaceuticals output suddenly collapsed in 2018 Q4, apparently because of a major (and unexplained) reversal in production in a single, unnamed pharma company. This is clearly abnormal and is under investigation by the statistical authorities.

Taken together, these three separate shocks have probably depressed German annualised growth rates by 1.4 percentage points on average in the second half of 2018. The bounce back will probably be spread between 2019 Q1 and Q2, and should boost German GDP growth by an average of 1.2 per cent over that period.

This catch-up should take the average annualised growth rate in the eurozone’s largest economy to around 2.0-2.5 per cent in the first half of 2019. Recession over!

ECB to remain on hold under new leadership

Provided that the drag from China gets no worse from here, the ECB will probably be able to delete its reference to “downside risks” during the second quarter, thus removing any bias towards further easing in policy (apart from new LTROs to replace expiring liquidity injections around mid year). 

With activity rebounding, Bundesbank President Jens Weidmann, a perennial hawk, is likely to repeat his recent call to “normalise” monetary policy without wasting too much time this year. The labour market is tight and wages are clearly accelerating.

Mr Weidmann is still a candidate to succeed Mario Draghi as ECB President. But his support from Chancellor Merkel has apparently waned, and it seems that he is no longer the clear favourite for the top ECB job. With a more dovish new President likely to succeed Mr Draghi, the ECB will see stubbornly low price inflation as a key reason to leave policy rates unchanged until 2020. 

German lender worried about the reputational and financial risk

Deutsche Bank rejected a loan request from Donald Trump in early 2016 after deciding the reputational and financial risks were too high, according to a person familiar with the matter.

Germany’s largest lender had a decades-long relationship with Mr Trump, extending hundreds of millions of dollars in credit for property deals and other ventures despite his history of bankruptcies.

But during Mr Trump’s presidential campaign three years ago, Deutsche Bank rejected a request for a new loan. The decision was first reported by The New York Times.

The request was discussed and ultimately rejected unanimously by Deutsche Bank’s group reputational risk committee. One of the executives who backed that decision was Deutsche Bank’s current chief executive Christian Sewing, who was then the co-head of the lender’s private and commercial bank.

Deutsche Bank is facing questions over its relationship with Mr Trump from Democratic lawmakers, who are keen to use their newly-acquired subpoena power in the House of Representatives to examine the president’s finances and look for links to Russia.

Among the reasons for turning down the loan was Mr Trump’s acrimonious campaign, which the managers thought could harm Deutsche Bank’s reputation. Another worry was a scenario under which Mr Trump defaulted on the loan after winning the election. In that instance, Deutsche Bank would face the awkward prospect of either writing off the debt or seizing property of a sitting US president.

The White House referred a request for comment to the Trump Organization. A lawyer for the Trump Organization did not respond.

Deutsche Bank faced further scrutiny over the weekend after it emerged that it had reduced its exposure to Russian state-owned lender VTB in 2016.

The decision, first reported by the Wall Street Journal, was made as part of a push to cut its exposure to Russia after the Ukraine-related sanctions were imposed, according to a person familiar with the transaction.

The lender sold a $300m wholesale loan it had granted to VTB to Alfa-Bank, the private Russian lender, and took a small loss on the loan’s book value, equivalent to about 1 per cent, according to the person.

At the time, Deutsche Bank was under intense market pressure due to rumour about a potential $14bn fine by the US Department of Justice.

The German bank failed to find a buyer of a second $300m tranche of wholesale loan to VTB, which matured and was repaid by the Russian lender in 2017.

A person briefed on Deutsche Bank’s internal discussions stressed that the German lender’s decision to hive off the VTB loans was not at all linked to potential links between the Russian government and Mr Trump’s presidential campaign. “Any insinuation to this effect is fabricated,” the person said.

Deutsche Bank declined to comment.

Bristol-Myers Squibb and Celgene $90bn merger ranks among most lucrative for banks

Drugmakers Bristol-Myers Squibb and Celgene will pay about $1bn in fees to seal their $90bn tie-up, including more than $300m to their financial advisers, in one of the most lucrative advisory assignments ever recorded on Wall Street.

The fees will be split among a handful of investment banks, including Morgan Stanley, JPMorgan Chase and Citigroup, as well as the lawyers, accountants and consultants who advised on the deal to unite the two pharmaceutical companies, according to a regulatory filing late last week.

Some $304m will be paid to the five investment banks for their work advising on the deal, ranking among the largest paydays ever for advisory services on a takeover, according to Dealogic and Refinitiv data.

Celgene estimated the costs related to its sale were $225m, while Bristol-Myers Squibb pegged its outlays at $200m before financing fees.

The deal, which itself ranks among the largest healthcare takeovers of all time, was financed by one of the biggest bridge loans on record, a funding package led by Morgan Stanley and MUFG Bank. Bristol-Myers Squibb estimated the cost of the $33.5bn loan at $547m.

The overall costs on the deal rival the near $1bn that Japanese pharmaceutical group Takeda spent on its purchase of Shire last year, although it is dwarfed by the roughly $2bn of expenses and fees paid by brewer Anheuser-Busch InBev on its £79bn takeover of SABMiller in 2016.

Acquisition activity around the globe has slowed amid geopolitical uncertainties related to Brexit, the trade war between the US and China, and fears that global economic growth is ebbing. A drop in overall deal numbers has heightened the importance of winning advisory mandates on these mega-deals for investment banks.

Bankers and lawyers worked with haste to sew up the transaction between the two pharmaceutical groups after Bristol-Myers Squibb’s chief executive proposed a buyout to the head of Celgene over dinner on September 21, the disclosure showed. The deal was agreed and unveiled to investors less than four months later.

Roughly 80 per cent of the $304m in financial advisory fees will be paid once Celgene and Bristol complete the transaction, which still requires shareholder and regulatory sign-off.

Payouts, which are likely to run into the millions of dollars, are also due to legal counsel Kirkland & Ellis and Wachtell Lipton, accountants KPMG, EYand Deloitte, as well as payments to public relations advisers including Joele Frank. The companies will also have to pay the costs to retire some of Celgene’s debt at a premium.

Morgan Stanley disclosed that it will earn $82m for advising Bristol on the deal, adding that it would be paid a further $100m to provide financing and other liability management services. Evercore and Dyal Co stand to earn $55m for their work on the transaction.

JPMorgan, which is poised to earn $100m advising Celgene, has worked closely with the biotech company over the past several years, brokering its $10bn takeover of Juno Therapeutics last year and its $7bn purchase of Receptos in 2015. Citigroup will be paid $67m for its work advising Celgene.

While Bristol-Myers Squibb and Celgene worked swiftly to agree to the acquisition late last year, the companies had held takeover talks previously. In early 2017, the two companies held exploratory talks over a stock-for-stock merger of equals and entered confidentiality agreements to share materials. But the talks were called off later that year.

Citigroup, Dyal Co, JPMorgan and Morgan Stanley declined to comment. Evercore did not respond to a request for comment.

BERLIN — It seemed like a no-brainer: Lower Germany’s embarrassingly high carbon emissions at no cost, and save some lives in the process.

But when a government-appointed commission in January dared to float the idea of a speed limit on the autobahn, the country’s storied highway network, it almost caused rioting.

Irate drivers took to the airwaves. Union leaders menacingly put on their yellow vests, hinting at street protests. And the far-right opposition used the opportunity to rage against the “stranglehold” of the state.

A highway speed limit was “contrary to every common sense,” the transport minister, Andreas Scheuer, swiftly declared, contradicting his own experts.

And that was that.

As far as quasi-religious national obsessions go for large portions of a country’s population, the German aversion to speed limits on the autobahn is up there with gun control in America, whaling in Japan and sovereignty in Britain.

With few exceptions, like Afghanistan and the Isle of Man, there are highway speed limits essentially everywhere else in the world.

But this is Germany, the self-declared “auto nation,” where Carl Benz built the first automobile and where cars are not only the proudest export item but also a symbol of national identity.

It’s also the country where, in darker times, Hitler laid the groundwork for a network of multilane highways that in the postwar years came to epitomize economic success — and freedom.

Call it Germany’s Wild West: The autobahn is the one place in a highly regulated society where no rule is the rule — and that place is sacred.

“It’s a very emotional topic,” confided Stefan Gerwens, the head of transport and mobility at ADAC, an automobile club with 20 million members, which is opposed to any speed limit.

So emotional, apparently, that facts and figures count for little.

Germany is woefully behind on meeting its 2020 climate goals, so the government appointed a group of experts to find ways to lower emissions in the transport sector. Cars account for 11 percent of total emissions, and their share is rising.

A highway speed limit of 120 kilometers an hour, or 75 miles per hour, could cover a fifth of the gap to reach the 2020 goals for the transport sector, environmental experts say.

“Of all the individual measures, it is the one that would be the most impactful — and it costs nothing,” said Dorothee Saar, of Deutsche Umwelthilfe, a nonprofit environmental organization that has lobbied for a speed limit.

“But when it comes to cars,” Ms. Saar sighed, “the debate tends to become irrational.”

There are already speed limits on almost 30 percent of roughly 8,000 miles of autobahn, imposed to regulate noise near urban centers and reduce safety risks on roads deemed unfit for unlimited speeding. The number of deadly accidents on stretches of autobahn that have a speed limit are 26 percent lower than on those without.

In 2017, 409 people died on the autobahn and in almost half the cases, the reason was inappropriate speeding, according to the German statistics office.

But that hasn’t swayed public opinion.

About half of Germans remain opposed to autobahn speed limits, a proportion that has not budged in the last decade, according to Michael Kunert, the director of the polling company Infratest Dimap.

An autobahn speed limit would make a significant minority of “people take to the barricades,” Mr. Kunert said. Or at the very least, he added, “it would stop them from voting for a party that passed one.”

Once, during the oil crisis in 1973, a German transport minister took his chances and imposed a speed limit. Road deaths stood at over 20,000 a year at the time (six times today’s level) and with oil prices skyrocketing, Lauritz Lauritzen thought Germans might reasonably see the benefits of saving some lives and some money on gas, too.

The speed limit lasted four months, and Mr. Lauritzen not much longer.

The experiment gave birth to the “Freie Fahrt für freie Bürger!” campaign — or “Freedom to drive for free citizens!” — the car lobby’s most powerful slogan to this day, and one used by political parties and car companies alike, a sort of unwritten second amendment.

“It’s all about freedom” said John C. Kornblum, a former United States ambassador to Germany, who first arrived here in the 1960s, and has been living (and driving) here on and off ever since.

“In that sense it really is like gun control,” Mr. Kornblum added, albeit with far fewer deaths. “All the rational arguments are there, but there is barely any point in having a rational debate.”

The first autobahn was built in 1932 between Cologne and Bonn, but after the Nazis took power, they downgraded that stretch of highway to a mere “overland road” so Hitler could claim credit for building the autobahn.

In 1937, a 20-year-old John F. Kennedy wrote a giddy letter home about his experience of driving on the autobahn with “no speed limit.”

A year later, Bernd Rosemeyer, a German racing driver and SS member, used the autobahn for setting speeding records until he crashed into a bridge at over 250 m.p.h. and died a national hero.

During World War II, a speed limit was imposed to save gas. But that was swiftly scrapped after the war.

“To many people, the idea of a speed limit feels like an affront to masculinity, like we’re getting softer, we’re degenerating,” said Erhard Schütz, a retired professor and expert on the autobahn’s history.

Today, catering to wealthy visitors from around the world who want to enjoy the thrills of German-style speeding is a big business for tour companies.

“You’re dreaming of driving full-throttle over the German autobahn in a supercar that will blow your mind with absolutely NO SPEED RESTRICTIONS?” one provider asks on its home page. On offer: an 80-minute drive in a Porsche at 699 euros a pop, or $800, complete with a driving instructor and “fully comprehensive insurance.”

Even a marketing campaign by the German government, long a die-hard supporter of the auto industry, lists a drive on the autobahn as one of “seven things you must do while in Germany,” right up there with visiting Neuschwanstein castle in Bavaria and listening to the Hamburg philharmonic.

Helpfully, the German foreign office also provides a 10-point survival guide to the autobahn. Chief among them: Know your limits.

“The left lane is for driving fast, extremely fast,” the guide explains. “Mind the cars bullying slow movers out of the way with indignant honking and incessant headlight flashing.”

To avoid accidents, it continues, always keep a safety distance.

What’s a safety distance at, say, 200 miles per hour? That, the guide explains, “can easily be calculated by dividing the speed at which you are going by two and leaving that amount in meters between yourself and the car in front of you.”

Easy, right?

Mr. Kornblum, the former ambassador, remembered taking terrified visiting American diplomats for a drive. “The first reaction is to start screaming, ‘we’re going to die!’ ,” he said. “They just can’t handle it.”

Or as the actor Tom Hanks once put it: “No matter how fast you drive in Germany, someone is driving faster than you.”

At the United States military air base at Ramstein, senior airman Sara Voigt from Ohio recalled driving on the autobahn for the first time two years ago. Her friend kept telling her she was a safety risk to herself and others — because she was going too slow.

“We had to pull over and I switched to the passenger seat,” Ms. Voigt said. “It was scary.”

Off the autobahn, Germany remains rife with rules. Some local authorities even dictate the color of sun umbrellas.

“Germany is terribly regulated, for reasons which have to do with the past, with a fear of uncertainty, a fear of being overwhelmed,” Mr. Kornblum said. “But then people look for their little spaces of freedom and the autobahn is one of them.”

And speeding isn’t the only freedom the autobahn offers.

Driving naked in Germany is legal, too. But if you get out of the car nude, you face a $45 fine.

Barrons weekend summary: positive features on BPY and TW.UK; Says AMZN is unlikely to acquire FDX FT:

* Cover story: “As recently as the end of September, Wall Street analysts had been predicting 10% growth in S&P 500 earnings in 2019. Today, the latest 2019 consensus estimate is just under 6%, compared with a hefty 21% in 2018. Analysts expect S&P 500 component earnings to $170, compared with an estimated $161 for 2018. For the first quarter of 2019, the outlook is dismal”; Amid all this, investors should consider SYK, MSFT, APTV, SAVE, BUD, and BLL to “outsmart a dimming outlook for profits.”

* Features: 1) Positive on BPY: Company, one of the world’s largest property owners, has a powerful strategy and a lofty yield, and comes at a depressed price because of debt, complexity, and an expensive external management structure, as well as exposure to malls—but shrewd management should help it overcome those challenges; 2) The political pressure and a broader public backlash against drug price increases have rattled the pharmaceutical industry, and several companies that have raised rates in past years are backing off, leaving no easy path for investors paying the sector (+ MRK, REGN; +/- ABBV, NVO); 3) Exchange-traded funds pose a serious threat to actively managed mutual funds, but more important than the active versus passive debate is the issue of tax efficiency and fund structure, and the annual—but somewhat hidden—costs for actively managed mutual funds.

* Tech Trader: Positive on AMD: Chip stock could be “the next product-led story that could overcome brewing macro worries,” and the company may be just starting a multiyear roll as it continues to build the foundation for PCs, servers, and graphics cards.

* Trader: “The Institutional View’s Andrew Addison notes that the S&P 500’s cumulative advance/decline line—a measure of the number of stocks trading up versus those trading down—hit a new all-time high last week”—and will follow its A/D to new highs eventually; Even in the age of exchange-traded funds that let people buy diverse portfolios for cheap, there may still be some appetite for buying stocks, according to BAC strategists who’ve seen clients moving to single stocks over ETFs; AMZN is unlikely to acquire FDX, says Barron’s, because of market issues and business issues—FedEx is “a completely different, economically sensitive company.”

* Interview: Steve Romick, who runs the FPA Crescent fund with Mark Landecker and Brian Selmo, is a consummate stock picker, but the fund also holds cash and bonds, reflecting broader views (picks: AIG, JEF, CHTR, CMCSA).

* Profile: Scott Moore, manager of Nuance Mid Cap Value, Nuance Concentrated Value, and Nuance Concentrated Value Long-Short, is a value investor with an intense focus on specific companies and risk control (top 10 holdings: XRAY, SAFM, SNN, TRV, EQC, SJW, RGA, UNM, APH, Edison International 5% Perpetual Preferred).

* Follow-Up: + GLW: Share of the company—which makes optical fiber, glass used in LCD display panels for TVs and computers, and Gorilla glass for cellphones—should have room to run even after recently beating Wall Street expectations.

* European Trader: + Taylor Wimpey: Shares of British homebuilder could provide a solid foundation for a portfolio, offering a double-digit dividend yield, the chance of capital appreciation, and a possible boost from the U.K. government’s favorable homeownership policy.

* Emerging Markets: In Brazil, the unorthodox presidency of Jair Bolsonaro, who took office Jan. 1, is off to a market-friendly start overall, but the market is pricing in reform more or less on the government’s terms—far from a done deal, and a potential problem.

* Commodities: “Venezuela is home to the world’s largest crude-oil reserves, but the sorry state of its oil industry means that U.S. sanctions on the country may have only a limited impact on the global crude market.”

Spotify wants to break out of the music streaming business. Gimlet, the company behind shows like Crimetown and Reply All, can help.

Spotify, which has been trying to branch out of the streaming music business, is getting ready to make its first big move into podcasting: It plans to pay more than $200 million to buy Gimlet Media, the startup behind popular shows like Reply All.

Sources say Spotify is in advanced talks to acquire Gimlet, the Brooklyn-based company which produces a network of popular shows and makes shows for advertisers like Gatorade. Gimlet has also been moving into TV production, including a deal that turned Homecoming, which started out as a scripted podcast, into an Amazon TV show starring Julia Roberts.

The move would be the first time Spotify has bought a content company — and one of the biggest acquisitions in the still-nascent podcasting industry.

Gimlet last raised money in 2017, via a funding round that valued the company at about $70 million. A person familiar with the proposed deal says Spotify will pay more than $200 million in cash for the company.

I’ve asked Gimlet and Spotify for comment.

Spotify, which has attempted to break into the video business without success, has been public about its ambitions to move into podcasting in recent months. It has started promoting podcasts to its 200 million users, and has done one-off deals for exclusive podcasts with celebrities like Amy Schumer.

The logic: Spotify’s 200 million users are already used to consuming audio from the service — and, crucially, while the music business is controlled by three big companies who have real leverage when it comes to licensing their stuff, podcasting is in its early days, and no one has a chokehold on podcast content. And though Apple remains the dominant podcast distributor, Tim Cook’s company doesn’t appear to spend much time or energy on podcasts.

Podcasting is a small industry, with an ad model that generated an estimated $315 million in 2017. Digital video ads, by comparison, generated $11.9 billion in the same year. But it is growing quickly, which makes it attractive to some platforms and publishers (including Vox Media) who are interested in tapping new revenue streams.

While Spotify has made other acquisitions, it hasn’t bought a company that makes and distributes content before. In part because that’s because it’s unlikely to have the resources to buy a major music label — and in part because any move to buy a smaller label would rile up the big labels, who are constantly worried that Spotify will become a direct competitor for them.

Spotify is scheduled to release its next quarterly earnings report next Wednesday, February 6.