Tuesday 21 February 2012, 12:35 | By

IMPALA restates opposition to Universal’s EMI deal as major files papers with European Commission

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IMPALA

Pan-European indie label trade body IMPALA yesterday confirmed once again that it will urge the European Commission to block Universal’s proposed acquisition of the EMI record labels, as the major formally submitted its proposals to the EC for consideration.

IMPALA first voiced its concerns about Universal’s plans, as well as Sony/ATV’s bid to buy the EMI publishing business, before even current EMI owner Citigroup announced its intent to sell to those bidders last November.

The indie trade body says the two deals, which will enable the two biggest music companies dwarf the biggest of the independents and even their last remaining major label rival Warner Music, will create a powerful duopoly, in which Universal and Sony – already business partners via the VEVO venture – will hold all the cards in both recorded music and music publishing.

Noting that Universal had now formally submitted its bid proposals to the European competition regulators, IMPALA’s Executive Chair Helen Smith said yesterday: “The clock has finally started ticking in Europe. Ultimately we expect this to lead to an outright rejection of both the Universal/EMI and Sony/EMI mergers. Keeping the online market as open as possible is essential for competition and for responding to piracy, as well as other market problems. Turning music into a two-horse race would hamper the natural development of the market and increase prices. No level of divestments or behavioural undertakings would prevent that from happening”.

As previously reported, Universal will argue that the music industry has moved on since the last time European competition regulators considered a major merger, and that therefore its latest acquisition should be approved, despite officials previously expressing concerns about even the firm’s current size the last time it expanded through a big takeover, ie the purchase of the BMG music publishing catalogues in 2007. The company will also likely argue that in the all important digital domain prices are determined by the big download platforms, mainly iTunes, and possibly that while piracy remains rampant price rises will always be limited to an extent by the availability of free illegal content.

But the independents are likely to dispute all those arguments. They will counter that the music rights sector has not changed as dramatically as Universal suggests, and that in the digital domain Apple’s market dominance will only decline as newer rivals and alternative digital platforms mature, making the download space more competitive, and increasing the power of mega-rights owners in any negotiations.

They might also point out that, while Apple may have set the original price point in the download space, the majors, led by Universal, were still able to pressure iTunes into introducing the variable pricing model they had always advocated, despite Apple’s initial insistence on a one-price-for-all model.

It will be interesting to see how the Commission responds. It yesterday confirmed that it had now received Universal’s proposals, and had set an interim deadline for phase one of its investigation of 23 Mar Interested parties, including IMPALA and Warner Music, who have also announced their intent to lobby against the EMI deals, will now be asked to fill out a questionnaire about Universal’s bid. Phase one could be extended to up to 35 days to allow that information to be gathered and considered.

In theory the Commission could rule on Universal’s bid, one way or another, at the end of the first phase of its investigation, though nobody, on either side of the argument, expects that to happen. Certainly if the Commission is in any mood to clear the merger, then it will need to consider a plethora of related issues, and that is unlikely to be achieved in 35 days.

Regulators will also likely remember how their initial approval of the SonyBMG merger in 2004 was overturned by the European courts because they hadn’t gone into enough detail in their initial investigation. Officials, therefore, will presumably be extra careful to ensure their ruling on this consolidation can’t be undone at a later stage on procedural grounds.

Assuming, therefore, that this investigation does go into phase two, that will add anything between two and four months to the proceedings, and there could be another month or two in between the two phases to allow interested parties to prepare more evidence. So, unless officials are in a mood to shock everyone, it seems likely no decision will actually be made this side of summer.

Sony/ATV is expected to submit its bid proposals to regulators any day now, and that investigation will then have the same initial timelines. As also previously reported, some reckon the investigation into that deal may be quicker, though it is likely the impact of a duopoly in music publishing on the collecting society system will be considered, and any consideration of the future of the collecting society system is rarely done quickly.

In related news, the New York Post yesterday claimed that Universal had provided guarantees to Citigroup regarding its EMI bid, so that if the merger fails at the regulatory hurdle in either the US or Europe the bankers won’t lose out. The arrangement means that if the deal falls through and Citigroup is forced to find a new bidder, and if the subsequent sale generates less than the $1.9 billion Universal offered for the EMI labels, then Universal will cover the difference.

Which would allow Warner Music owner Len Blavatnik to buy the EMI labels at the price he thought was fair (somewhat less than $1.9 billion), while also allowing Citigroup to recoup the bulk of the losses it made by backing Terra Firma’s EMI acquisition in 2007, all at Universal’s expense. Of course if Universal bosses have made such guarantees, that reaffirms just how confident they are that their merger plans will ultimately be approved. Time will tell, of course.

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