Indies Fight On Two Fronts

The break up and sale of EMI leaves the indie music companies fighting on two fronts – opposing the recorded music business going to Universal and the publishing interests to a consortium led by Sony.

IMPALA, the Brussels-based organisation that looks after the interests of the industry’s independents, had set out its stall before either deal was done.

A day before Universal’s $1.9 billion deal to buy EMI’s record business Nov. 11, IMPALA put out a press release re-iterating its opposition to the number of major music companies being reduced from four to three.

Within hours of that deal being done, it put out another expressing confidence that the European regulators would block it, despite Universal offering to sell off parts of it for around euro 500 million ($685 million).

“Given that Brussels has taken a previous decision that Universal should not be any bigger, we would expect the sale to Universal to be blocked outright, even if it offers to increase the divestments it is prepared to make,” explained IMPALA executive chair Helen Smith.

She said IMPALA would take a similar course of action if Sony completes the purchase of EMI publishing, which it has agreed to do for around $2.1 billion.

BMG Rights Management, a joint venture between German media group Bertelsmann and U.S. buyout firm Kohlberg Kravis Roberts, is believed to have been the under-bidder for the publishing interests.

The exact wording of IMPALA’s objections to the deals will likely be made public after next week’s board meeting.

In the case of Universal it’ll be based on the fact European commissioners ordered the Vivendi-owned company to sell off assets when it bought BMG’s publishing. The commissioners took the view Universal already controlled too much of the global music market.

European and U.S. regulators may take different views on the deal, although in the past it’s a situation they tried to avoid. EMI’s share of the American record business is less than ten percent and market dominance may be less of a factor.

In Europe the regulatory authorities are also to some degree bound by their previous statements regarding market dominance in the cultural sector.

The European Commission and the European Parliament have recently called for competition rules to take into account the character of the sector, particularly as around 80 percent of all new releases are produced by independent outfits.

“Universal will need to clear the necessary regulatory hurdles before they can take ownership,” EMI chief exec Roger Faxon, who opposed the breaking up of the company, warned in a staff memo confirming the recorded music business had been sold.

The regulatory issues over the sale of the publishing business are made more complex by the fact Sony will own less than 40 percent of it.

It’s put up $325 million for its share and is believed to be the largest stakeholder but other investors reported to include the estate of Michael Jackson, David Geffen and Blackstone Group collectively have the majority share.

Many UK business analysts reckon Citigroup has done well to get $4 billion for EMI.

The U.S. bank has lost at least $1 billion through its involvement with the company, but the money markets are now so tight that Citi was reported to be considering postponing the sale. It seized EMI in February because former owner Terra Firma couldn’t service the loans needed to buy it.

IMPALA has asked the European Commission to act quickly, expressing concern that EMI will “continue to languish” and its artists suffer while its future is under review.