Friday 21 September 2012, 11:46 | By

Universal’s EMI purchase gets European approval – up to 60% of EMI’s European assets to be sold

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As expected, the European Commission has approved Universal Music’s proposed takeover of the EMI record company, but on the condition the mega-major commits to some sizable divestments of EMI assets in Europe, and of some of its own units.

Among the EMI assets to be sold are the Parlophone, Chrysalis and Mute labels and catalogues (minus The Beatles and Robbie Williams) and the EMI Classics division. On the Universal side, it will sell the Sanctuary catalogue and the Co-operative Music indie label services venture.

The Commission, which has only issued a short statement so far, said that “the very significant commitments proposed by Universal will ensure that competition in the music industry is preserved and that European consumers continue to enjoy all its benefits”. It is thought that the divestments could amount to 60% of EMI in Europe, and up to a third of the one-time British major label’s assets worldwide.

In a statement welcoming the ruling, Universal Music said: “Universal Music Group is delighted to have received regulatory clearance from the European Commission for its acquisition of EMI Recorded Music. Today’s approval brings to an end an extensive EU regulatory review and the acquisition will benefit the artistic community and music industry. We are delighted Universal Music will retain over two-thirds of EMI on a global basis, contributing to the accretive nature of the deal. With a broad array of EMI artists from Katy Perry, Emeli Sandé, Robbie Williams, Herbert Grönemeyer, Lady Antebellum and Norah Jones, to icons like The Beatles, the Beach Boys, Genesis and Bob Seger, we remain true to our vision: to invest in talent and grow the company to offer consumers more music and more choice, while furthering our support for new digital services and entrepreneurs”.

Although the divestments Universal has had to agree to in Europe go way beyond what even pessimists at the world’s biggest music company expected, most experts reckon the mega-major could sell on the EMI units to be divested at pretty much the rate it paid US bank Citigroup for them, so shouldn’t lose out in that regard. Though whether it will be able to achieve the planned costs savings across the combined EMI/Universal group, given the combined company will be operating at a lower scale than expected, remains to be seen.

The arrangement in Europe will leave a chunk of EMI, especially in the UK, in limbo for a few more months, while sale negotiations are concluded. It is thought that those bits of EMI in Europe now set to merge with Universal will do so in the relatively short-term, with those bits due to be sold sitting independently until deals are done. Various parties are thought to be interested in some or all of the EMI units due to be sold, though BMG is seen as a lead bidder.

European indie labels group IMPALA, which has opposed the deal from the outset, said this morning that it was pleased that the tough concessions demanded by the EC showed that Universal’s initial argument – that its EMI acquisition should not cause any concerns regards market dominance because of new competitors from the digital sector and the threat of piracy – was rejected. However, it said that even with the divestments proposed, the deal was bad news for the European music community.

IMPALA Executive Chair Helen Smith: “This decision has finally put a freeze on Universal’s ability to expand further and sets a benchmark for constraining abusive behaviour across the whole market. Following the approval of the Sony/EMI merger, however, this decision nonetheless reinforces what is already a powerful duopoly. Contrary to the basic principles of competition in cultural markets, artists and consumers will ultimately pay the price. We will consider our options with our lawyers as soon as the full decision is published. In the meantime, it is vital that the divestments process balances the market and maximises competitive forces to the duopoly”.

Meanwhile Martin Mills, Chairman of UK independent Beggars Group and a vocal opponent of the Universal/EMI deal, added “It’s good to see that the Commission has seen this deal as such a threat to the market that it has demanded and received truly swinging commitments on divestments. However, that should not conceal that fact that Universal’s arrogance has paid off for them, that they have destroyed a significant competitor, and that even with these divestments their ability to dominate and control the market has reached even more unacceptable levels. Anyone trying to start a new digital service will be realising that very soon, and we will continue to look to the regulators to monitor ongoing behaviour”.

Meanwhile, speaking for the UK indie community, Alison Wenham of the Association Of Independent Music said: “Universal are being forced to sell the crown jewels of EMI following their misjudged attempt to persuade the EC that there would be no competition concerns. We congratulate the EC on a very diligent and thorough investigation, and now urge the Commission to continue to oversee the divestment programme, to ensure that competition is preserved in the music industry for the benefit of artists and consumers, independents and digital companies. We want to see the independent sector strengthened, not weakened by the divestments and will continue to actively campaign to ensure this happens”.

Approval for the deal from US regulator the Federal Trade Commission should follow pretty swiftly too, with no further concessions required other than those enforced by Europe. FTC approval is expected next week, though some are now predicting it could also come today.

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