EC Fears Universal Domination

The European Commission has revealed it’s taking a longer look at Universal’s acquisition of EMI’s recorded music business, a purchase that would leave Universal almost twice the size of its nearest rival.

The announcement, which came March 23 and at the end of the first phase of the inquiry, said the Vivendi-owned company’s power seems unable to be sufficiently constrained by customers, competitors or piracy.

The EC is concerned that such market power would cause competition problems in both the physical and digital markets.

The European regulator has now set a new date of Aug. 8 to reach its final conclusion.
“The proposed acquisition could reduce competition in the recorded music market to the detriment of European consumers,” explained EC competition commissioner Joaquin Almunia.

IMPALA executive chair Helen Smith says the EC’s initial findings match the experience of its members on the ground. IMPALA represents the indie record labels.

Universal, which agreed to a $1.9 billion deal to buy EMI’s record business in November, will hope to convince the EC that it can make sufficient divestments to calm fears of global domination.

It’s also hired Bank of America to sell three of its music catalogs to raise money to help pay for the deal.

Universal Music Classical, the German folk music Koch catalogue and gospel catalog Brentwood Benson are expected to raise about $100 million of the $680 million the company is targeting.

Universal accepted the entire regulatory risk connected with the purchase of EMI’s recorded music business. U.S. banker Citigroup is guaranteed to receive the full price, whatever the European regulatory authorities decide.

A Universal spokesman told the BBC: “We recognise the Commission needs time to fully review this transaction. We will continue to cooperate fully with them.”

Citi seized control of EMI when UK private equity firm Terra Firma couldn’t service the $4.2 billion loan it needed to buy the company in 2007.

The results of the EC’s initial investigation into EMI Music Publishing being sold to a consortium led by Sony/ATV Music Publishing is expected April 2.

Sony and its fellow investors, which include the Michael Jackson estate, have now offered concessions to the European Union to help facilitate the $2.2 billion deal.

The EC hasn’t disclosed the details of what the Sony consortium is offering, but it’s likely they would include selling off parts of the larger business.

Warner Music, the only major music company not to buy a slice of EMI, is opposing both deals on the grounds that they will make Sony and Universal far too powerful in the marketplace.