UMG/EMI Approved

The U.S. Federal Trade Commission said that Universal and Emi’s businesses were different enough from each other that the deal wasn’t anti-competitive. It added that it didn’t see the need to impose the same conditions on the deal as European regulator because of the differences between the U.S. and European markets.

EU Competition Commissioner Joaquin Almunia said that the fact that the companies involved trade in music made the case a particularly emotional one.

“This has been one of the most difficult discussions in my life as commissioner for competition because of … the existence not only of an industry – we are used to dealing with mergers between companies in very different sectors – but the existence of a cultural dimension,” said Almunia.

Universal’s rivals, like Warner Music and small independent labels, have strongly protested the deal, saying it could squeeze out other players.

“This decision has finally put a freeze on Universal’s ability to expand further,” Helen Smith, executive chair of Impala, an industry group for independent labels, said in a statement Friday. “However, this decision nonetheless reinforces what is already a powerful duopoly.”

The Universal deal is one part of the break-up of EMI. Regulators have already allowed a group led by Sony Corp. to buy EMI’s music publishing arm for $2.2 billion.

If the Universal deal goes through, its average market share in European countries would be less than 40 percent after the asset sales, Almunia said.

Simon Dyson, the editor of Music & Copyright, an industry newsletter, said it appeared Universal’s global market share would rise from around 29 percent to 34.5 percent – but that because the company was already such a big player, the acquisition was unlikely to drastically change the industry.

A digital music service can’t launch without a company that’s got one-third of the world’s music, but it also can’t launch without a company that has one-quarter,” he said. “I genuinely don’t see this as big a deal as some of the critics.”

Still, if the U.S. also approves the deal, it will mean that the number of major record labels drops from four to three.

Almunia said that was a concern for European regulators, and they are trying to remedy it by insisting that Universal sell about two-thirds of the assets they’re getting rid of to one buyer, in the hopes of creating another significant player in the music business, even if it won’t be as large as the old EMI – which was already the smallest of the four “majors.”

He hinted that the EU wouldn’t want to see either Warner or Sony be the buyer of that chunk, although he said that it was up to Universal to decide whom they wanted to sell to.

Universal welcomed the announcement, brushing off suggestions that it is being forced to sell so much of EMI that the deal might not make sense any more.

“We are delighted Universal Music will retain over two-thirds of EMI on a global basis, contributing to the accretive nature of the deal,” the company said in a statement.

The company noted that it is acquiring several iconic artists – and particularly the Beatles collection. Almunia said the British sensation’s songs were exempted from the Parlophone sale because companies themselves propose asset sales in competition negotiations. The regulator can only then approve or deny the proposal; it does not make its own recommendations for what should be sold off.

Dyson agreed that, even with the asset sales, Universal did pretty well.