Indies Let Out Another War Cry

Within hours of Bertelsmann’s intention to sell its publishing business to Vivendi-Universal becoming clear, the indies were back on the warpath, threatening to do all in their power to squash the deal.

The power of the independent companies is less likely to be underestimated now that Impala, their trade organization, has successfully appealed the European Commission’s decision to allow the Sony BMG merger.

Most European papers, and particularly the U.K.’s weekend business pages, largely ignored that appeal. Any coverage it received was confined to analysts taking the view that recent changes in the industry – mainly caused by the threats of piracy and downloading – were sufficient reasons to believe the EU would be less stringent than it was when it turned down the EMI-Warner mergers.

Impala’s statement that followed the news that Bertelsmann had picked Vivendi-Universal from 20 or so bids it received for its publishing business is confident that “regulatory approval will not be obtained.”

It points out that, when considering the attempted Warner-EMI merger of 2000, the EU concluded that further concentration in the music publishing market could not be tolerated, and expressly stipulated then that a merger of two major publishing groups would significantly strengthen an already-existing collective dominant position in the music publishing market.

Despite the changes in the market, the independents seem to think the European Commission will have little choice but to reach the same conclusion with BMG and Universal in 2006.

They also said new merger rules will make regulatory approval more difficult to obtain, and that Universal’s status as the smallest of the major publishers will not change the Commission’s assessment.

They believe the merger will aggravate competition in the music sector even more, particularly given the strength of Universal in recording.

Impala also said the Commission will be bound by the European Court of Justice’s July decision that annulled its approval of the Sony BMG recorded music merger.

At that time, both Sony and Bertelsmann agreed that concentration in music publishing was not acceptable and expressly excluded it from their recorded music business.

Arguably, Bertelsmann’s decision to sell to Universal could be seen as a breach of commitments to the Commission.

“This move contradicts Universal’s own position in 2000, when it opposed the attempted EMI Warner because of the impact of further concentration in music publishing,” Impala president Patrick Zelnik said.

According to the latest figures from Music & Copyright, Universal has a 25.6 percent share of the recorded music market. It’s followed by Sony BMG (19 percent), EMI (13.6) and Warner (12.8).

EMI Music heads the publishing chart with a 17 percent share, closely followed by Warner Chappell (16 percent). BMG has a 13 percent share, which, if sold to Universal, would push the French company’s slice of the market to 25 percent. Currently, Universal has 12 percent. Sony comes in last of the majors with 7 percent.

The obvious argument from Bertelsmann and Universal is that the indies hold a far greater chunk of the publishing market (35 percent) than they do the recorded music market, and the deal wouldn’t cause that percentage to drop.

– John Gammon