Monday 26 March 2012, 11:53 | By

As its merger investigation heads into phase two, EC outlines some of its specific concerns with Universal’s EMI bid

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So, as expected, the European Commission announced on Friday that it was beginning a second more in-depth stage to its investigation into Universal’s proposals to buy the EMI record companies.

In theory the EC could have green lighted the deal at the end of its initial one month investigation, but that never seemed likely, and even Universal had always expected a more in depth three month study into their proposals to be required.

The Commission told reporters: “[The] initial market investigation indicated that the proposed transaction may raise competition concerns in the wholesale of physical and digital recorded music in numerous Member States as well as in the European Economic Area as a whole, particularly in light of the merged entity’s high market shares and increased market power”.

Meanwhile the Commission’s VP in charge of competition policy, Joaqu’n Almunia, added: “The proposed acquisition could reduce competition in the recorded music market to the detriment of European consumers. The Commission needs to make sure that consumers continue to have access to a wide variety of music in different physical and digital formats at competitive conditions”.

Noting that the opening of the second phase of an investigation does not in itself “prejudge” the final result the EC will reach, the Commission confirmed the new phase will run for 90 days, meaning a decision should be made by 8 Aug.

Though, while not wanting to prejudge the phase two investigation, the EC did then outline some of its specific concerns about Universal’s EMI bid, in particular the mega-major’s “increased market power vis-ˆ-vis its direct customers”, adding in a statement: “At this stage of the investigation, the new entity, which would be almost twice the size of the next largest player in the EEA, would not appear to be sufficiently constrained by the remaining competitors on the market, by its customers’ buyer power, and/or by the threat of illegal music consumption (so-called ‘piracy’)”.

Needless to say, those who oppose the bid welcomed both the second phase investigation and the specific concerns raised by the EC in its statement.

Helen Smith, Executive Chair of pan-European independent labels trade body IMPALA told CMU: “We agree with the Commission’s findings so far that Universal’s increased power cannot be constrained by competitors, customers or piracy. This matches the experience of our members on the ground. Competition problems exist in the physical as well as the digital market, as the Commission recognised. We welcome the robust confirmation that the EC will ‘make sure consumers continue to have access to a wide variety of music in different physical and digital formats at competitive conditions'”.

Universal issued a simple statement on Friday confirming it had expected a two phase investigation in Europe, telling reporters: “Phase 2 was always expected; we recognise that the Commission needs time to fully review this transaction. We will continue to co-operate fully with them and look forward to a successful resolution of the process”.

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