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EC to provide Universal with statement of objections over EMI deal

By CMU Editorial | Published on Monday 11 June 2012

The European Commission’s investigation into Universal’s bid to buy the EMI record company is about to enter its next stage as the EC competition regulator serves the music major with a “statement of objections” which will outline its key concerns about the proposed merger.

The key concerns have been identified via the Commission’s previously reported in depth investigation into the acquisition proposals. Although the statement of objections is a routine part of the EC’s merger investigation process, it confirms that European regulators want some key issues to be addressed before the deal can be considered for approval.

According to the Financial Times, Universal bosses – who originally stated that they believed the deal could win European approval without compromise – have already submitted some proposals to remedy the most obvious concerns, but regulators felt those proposals did not go far enough.

Though, now that we are in the much expected compromise stage of the process, you’d expect some backwards and forwards of proposals between parties, the major unlikely to offer too many concessions at first instance. Once it has the statement of objections, the major can either challenge the Commission’s findings, request a hearing or sweeten its remedies offer.

As much previously reported, both the independent sector and Warner Music have complained that if the Universal and EMI record labels are combined, the merged company will be far too dominant in the European record industry, giving it an unfair advantage when signing artists, pitching for media space and negotiating with digital service providers. Universal denies that is so, arguing that it now competes with the wider music industry, and other major tech and entertainment firms, as well as against traditional record companies, and that rampant piracy limits its power in the digital domain.

Though the power of a combined Universal/EMI in the digital space is seemingly a key concern for EU regulators, and will probably be the domain where the major will have to make the most concessions, though quite what those concessions might be isn’t clear.

According to the FT, EU Competition Enforcer Joaquí­n Almunia said on Friday: “A company with a large and popular catalogue can have significant market power over digital platforms, which would have a keen interest to strike a deal with it. Ultimately, we will need to make sure that the company that would emerge from the deal would not be in a position to shape the future landscape in the digital music market to the detriment of users and artists”.

Welcoming the concerns expressed so far by the Commission, the boss of IMPALA, the pan-European trade body for the indie label sector, Helen Smith, told CMU: “We welcome this news and expect to see a strong statement of objections confirming the Commission’s earlier findings that Universal is a danger in the physical and digital market because it cannot be adequately constrained by competitors, customers or piracy”.

The Commission hopes to make a ruling on the Universal/EMI deal by 6 Sep. The Federal Trade Commission in the US is concurrently reviewing the merger, while the transaction is also due to be debated in US Congress by the Senate Judiciary Committee’s antitrust subcommittee on 21 Jun.

UPDATE 11 Jun 2012 14:00: Universal Music has issued the following statement: “A statement of objections is part of the European Commission’s usual due process when considering mergers, and is expected.  When we receive the statement, we will prepare a detailed response to the Commission, which will address the concerns outlined in this procedural document.  We will continue to work closely with the Commission and look forward to securing regulatory clearance”.