Sony-BMG merger approved by EU
BRUSSELS — Independent record companies Tuesday threatened to go to court to challenge Sony and Bertelsmann’s creation of the world’s second largest music company after failing to convince European Union antitrust regulators to block the deal.
The European Commission unconditionally approved the 50-50 joint venture between Japan’s Sony Music and BMG, the German media giant’s music unit, late Monday after finding insufficient evidence the deal would harm consumers.
The deal is expected to win U.S. antitrust clearance within days, bringing Sony artists like Aerosmith, George Michael and Barbra Streisand and BMG’s Avril Lavigne and Elvis Presley under one roof.
In its decision, the commission indicated it believed its initial concerns about competition in the market were not entirely unfounded.
“The commission will keep a close watch on the music sector as it becomes even more concentrated and would very carefully scrutinize any further major concentration in the industry,” it said.
The deal will reduce the number of music “majors” from five to four. Sony and BMG argued they needed to join forces to deal with declining CD sales and the threat from illegal downloading on the Internet.
But independent labels fear the merger will make it even tougher for their artists to gain exposure and shelf space in a market increasingly dominated by mega-stores.
Martin Mills, chairman of the Beggars Group label and board member of Britain’s Association of Independent Music, noted BMG posted record operating profits of around $37.2 million US in the first half of this year.
“This merger is not about economic necessity in a changing market, as BMG’s stellar figures demonstrate,” he charged. “It is about the desire to dominate and to control the outlets at media and retail through which news of wonderful new music is disseminated.”
Impala, a group representing 2,000 smaller labels, is considering challenging the deal in court, said spokesman Jean-Luka Monte.
But antitrust lawyers noted such challenges by third parties are extremely rare, with very little likelihood of success.
“It’s about as close to zero as you can get,” said Stephen Kinsella, an international business expert with the Herbert Smith law firm in Brussels.
Universal Music holds the top spot in Europe, with Sony-BMG pulling ahead in the United States. The rivals control about a quarter each of the $32 billion US global music market.
The other two majors are EMI and Warner Music, with about 30 per cent of the global market between them.
Four years ago, EMI and Warner scrapped a proposed hookup in the face of EU charges that fewer majors could reduce competition and lead to higher prices and less choice for consumers.
A renewed courtship was cut short last year when former Universal Music chief Edgar Bronfman Jr. stepped in to buy Warner for $2.6 billion US.
Similar concerns emerged in the EU’s initial appraisal of the Sony BMG deal, with antitrust chief Mario Monti’s team suggesting “tacit collusion” in setting CD prices among the five majors.
But after closed-door hearings and an internal review, the commission backed down, saying it “had to conclude . . . that the evidence found was not sufficient to demonstrate in a successful way that co-ordinated pricing behaviour existed in the past.”
Reducing the number of majors to four “would not yet create a collectively held dominant position” in recorded music, it said.
The reversal of the EU’s position on the merger reflects new hurdles instituted by the commission since European courts overturned three merger-blocking decisions in 2002.
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