EMI Consolidation With Sony and Universal Prompts Scrutiny and Opposition
A week after the Grammy Awards celebrations, the music industry is hunkering down for what could be an intense yearlong fight over corporate consolidation.
The ownership landscape of the major music companies has shifted significantly in the last year. In May the Warner Music Group was sold to Access Industries, a conglomerate controlled by the Russian-born billionaire Len Blavatnik, and in November Citigroup reached a pair of deals to split EMI — home to the catalogs of the Beatles, Coldplay and Katy Perry — between Sony and the Universal Music Group.
The EMI deals are subject to approval by regulatory agencies in the United States, in Europe and elsewhere. The Federal Trade Commission has been investigating the mergers since late last year, and on Friday, Universal, which had bid $1.9 billion for EMI’s recorded music division, filed its merger application with the European Commission.
Sony, which led an investment consortium in a $2.2 billion offer for EMI’s music publishing assets — the copyrights for songwriting and compositions — is expected to submit its filing soon.
If approved, the sales would reduce the number of major players from four to three and give Universal and Sony substantial advantages over Warner. Battle lines have been drawn throughout the industry, with Warner and independent labels lobbying to block the deals and consumer groups expressing concern that the deals would stifle competition and innovation.
“Turning music into a two-horse race is not good for artists, not good for consumers and certainly not good for the development of the online market,” said Helen Smith, executive chairwoman of Impala, a collective of small music companies that has been a vocal opponent of mergers over the last decade.
In a statement on Friday, Universal said it would “work closely with the commission and remain confident of securing clearance.”
Critics of the deals point to the imbalance in market share that would result among the remaining major companies. Universal would control about 40 percent of the global market for recordings, and Sony about 32 percent for music publishing. (Warner has about 15 percent of the global recordings market, according to the British trade publication Music & Copyright.)
Edgar M. Bronfman Jr., a former chief executive for Warner who remains a board member, said at a recent media conference that a combined Universal-EMI would be a dangerous “super-major.” He added that Warner, which has already hired firms in Washington like Brownstein Hyatt Farber Schreck to lobby the F.T.C., would fight the deal “tooth and nail.”
In some European countries, Universal would control half the market, a level sure to prompt close scrutiny. Yet regulators may be sympathetic toward a beleaguered, and drastically changed, business, with sales plunging and new entrants like Apple gaining powerful positions.
“Yes, it’s a different market, but 50 percent of a shrinking market is still 50 percent of a market,” said Emmanuel Legrand, a London-based consultant and former international editor of Billboard magazine.
The F.T.C.’s investigation, already in its so-called second request stage, will most likely stretch into the summer, while the process in Europe could take six months or more. Media analysts expect a greater challenge for Universal because Sony’s power would be diluted: it owns half its current music publishing venture, Sony/ATV (the other half is owned by the estate of Michael Jackson), and would have only a 38 percent stake in EMI’s publishing.
Universal is expected to argue that a larger company would be better able to keep prices down to combat piracy, according to three executives briefed on its plans. But Universal may encounter a precedent set in its earlier takeover of BMG Music Publishing, when the European Commission found that big labels “have succeeded in imposing higher licensing rates for recording rights” than smaller ones.
Ms. Smith said she hoped the commission would block the deals “outright,” but most music executives and analysts expect the review process to result in a negotiation over divestments, with Universal forced to sell chunks of its holdings, especially in overseas markets. The company has already said it would sell $680 million in “noncore assets” to help finance the deal.
Smaller labels are especially worried about the leverage Universal may gain in negotiations with online music services, which generally need licenses from labels and publishers to distribute music. With such a large market position, the critics say, Universal could effectively dictate terms to technology companies — even big ones like Apple — and stunt development.
“This is a tremendously large thumb on the scale of a developing digital music ecosystem,” said Casey Rae-Hunter, deputy director of the Future of Music Coalition, an artists’ advocacy group, which last week wrote to the F.T.C. outlining its objections.
A smooth takeover of EMI is essential for Universal, which assumed all the regulatory risk from Citigroup and agreed to pay the bulk of the $1.9 billion purchase price within 10 months, whether it is approved by European regulators or not.
http://www.nytimes.com/2012/02/20/bu...pposition.html
