Universal plans concessions to convince Commission
By Sophie Mosca | Friday 20 July 2012
Universal, world leader in the music industry, is preparing a vigorous response to the European Commission’s concerns over its proposed acquisition of EMI’s recorded music business (number four globally). Its proposal will include the disposal of assets as well as more structural commitments related to its practices in the sector. After considering the sale of Virgin Records, owned by EMI, on 16 July (see
Europolitics 4466), Universal is now also considering divesting itself of other EMI labels in the field of jazz (Blue Note Records) and classical music (Virgin Classics and EMI Classics).
The aim is to convince the EU executive, which is intent on preventing excessive market concentration that would be harmful to competition and artistic creation. It is precisely in these two sectors that it has identified a possible concentration of up to 70% in the hands of the merged entity. It is also known that the Commission prefers to receive concession commitments in clearly identified segments of activity, rather than just a few artists here and there, even if they are heavyweights in terms of profits.
The EU executive takes a negative view of this €1.5 billion merger, which concerns both the physical and digital market for recorded music. The deal would give unprecedented control to Universal, which already has a 26.5% share of the global music market: it would have twice the clout of second ranked Sony.
In its statement of objections sent to Universal (4458), the Commission identified 26 countries of the 29 in the European Economic Area where the merger would create problems on the digital market and 21 countries where problems would occur on the physical market. Universal obviously considers these European concerns exaggerated.
The European independent labels represented by Impala are up in arms over the proposed merger, seeing it as a threat to distribution conditions and artists’ earnings. Their struggle for musical diversity has the backing of Warner, the rejected candidate for the EMI takeover, and Impala has also made its case to Culture Commissioner Androullia Vassiliou and Digital Agenda Commissioner Neelie Kroes.
This opposition front has been destabilised by ‘leaks’ on the concessions to be proposed by Universal, as evidenced by the sudden reversal in the position of Impala Vice-President Patrick Zelnik, who heads the independent label Naïve. On 17 July, he expressed support for the EMI-Universal merger, although he had fiercely opposed it before, along with the merger with Sony or BMG. This position was seen in the sector as a dramatic turn of events and specialists are convinced that it will force Zelnik to resign from Impala. A statement released by Impala the same evening reiterated its opposition to the merger. The change of attitude by Zelnik was caused by the announcement by British billionaire Richard Branson of his plans to buy Virgin Music, which he founded 40 years ago and sold to EMI in 1992. The Zelnik-Branson duo intends to retrieve this catalogue of famous artists (including Phil Collins, the Rolling Stones, Lenny Kravitz, etc) that they helped build up during their collaboration at the time Virgin was launched.
But Warner and other competitors also have their sights on this ‘jewel in the crown’, which may still change what happens pending the Commission’s decision and de facto weaken the opponents’ camp.
In addition to these divestments, meant to calm the debate and show its good will, Universal has also drawn up a statement of commitments on its future conduct with respect to its competitors, including the independent labels, more traditional players like Warner and Sony and digital start-ups like Deezer and Spotify. It is also said to have proposed a plan for investments in up-and-coming artists in its own catalogues and in those inherited from EMI that would remain in the merged entity if it is approved.
The question is whether this package of concessions in different areas will satisfy the Commission. It has until 6 September to issue its final decision.