As Universal Music Group's acquisition of EMI Music's recorded music division today received approval from both European and U.S. regulators, details have emerged about the exact steps Universal must take to win European Commission support. The Commission released a memorandum that answers many of the questions regarding the divestures of EMI assets and the basis for the Commission's actions. As Billboard.biz has reported, the U.S. Federal Trade Commission approved the merger without any additional concessions.
Here is an FAQ with information from the Commission's document, the FTC's approval documents with additional information that covers the what, when, where and why of the divestitures Universal must make:
Q: When will Universal take control of EMI?
September 28, according to an email to EMI staff from CEO Roger Faxon (assuming the deal is approved in the U.S. by the Federal Trade Commission).
Q: What EMI labels must Universal sell?
Universal must sell Parlophone, Chrysalis, Mute and a long list of local labels listed below. The Parlophone sale is part of the divestment of EMI Recordings Limited.
Q: What artists are on the labels being sold?
Parlophone is home to Coldplay, David Guetta, Lilly Allen, Blur, Tinie Tempah, Pink Floyd, David Bowie, Tina Turner, Duran Duran, Cliff Richard, Kylie Minogue and Lilly Allen. EMI France has David Guetta's catalog.
Q: What else must Universal sell?
Universal must also sell Co-Op Music http://www.cooperativemusic.com/, a transnational marketing and distribution business that licenses independent labels, and EMI's 50% stake in the "Now That's What I Call Music" compilation joint venture and continue licensing its repertoire for the compilation series for the next ten years.
Q: Will Universal need to sell its rights to the Beatles?
No, Universal will have the rights to the Beatles' catalog, as did EMI.
Q: What EMI artists are staying with Universal?
Among the artists being absorbed by Universal are Katy Perry, Lady Antebellum, Keith Urban, the Beach Boys, Norah Jones, Foo Fighters, Eric Church and Daddy Yankee.
Q: Who can purchase these assets?
The Commission says purchasers must be "already active as a record company" or "have a proven track record in the music industry." The Commission set this rule in hopes a strong competitor emerges against Universal. Warner Music Group, Sony Music Entertainment and BMG Rights Management, a large owner of publishing assets, are likely bidders. Platinum Equity and MacAndrews & Forbes Holdings were rumored to be interested in acquiring EMI assets but don't have the track record desired by the Commission.
Q: How long does Universal have to sell these assets?
About six months, according to reports.
Q: Can Universal buy back its assets?
Universal cannot buy any EMI assets it sells as a result of this acquisition for a period of ten years.
Q: What happens to EMI businesses until they are sold?
According to Faxon's email to staff, businesses that aren't being folded into Universal will be gathered into an independent unit and report to a "hold separate manager" who will report to a trustee.
Q: Are the rights divested worldwide and cover digital and physical formats?
Yes. The European Commission believes this will "ensure a viable and competitive exploitation of the divested artists and catalogue by the purchaser of the assets."
Q: Will the merger hurt digital innovation by giving Universal more market share?
The Commission's investigation revealed that a record company's size influences its ability to bargain with digital services such as Apple, Amazon and Spotify. The Commission was concerned that "if Universal were able to significantly increase its size after the merger" digital services would face "significantly increased licensing costs" while consumer choice and cultural diversity could be harmed. Thus, the Commission took steps to reduce Universal's market share accordingly.
Q: What other steps did the Commission take to help digital competiveness?
Universal has agreed not to enter into most-favored nation agreements with digital services in the European Economic Area (the European Union plus Iceland, Liechtenstein and Norway). A most-favored nation is a contract provision that gives a seller (the record company in this case) the best terms the buyer (a digital service in this case) gives to other companies (other record companies in this case). This commitment covers new deals as well as re-negotiations and renewals. The Commission believes ending Universal's inclusion of this contract provision will help lower licensing costs.
Q: Did the FTC seek any concessions to allow the merger?
No. The FTC sought no concessions in addition to those required for regulatory approval in the EU. The FTC believed the higher market share Universal and EMI have in the EU relative to the US, and the more diverse set of customers in the EU, means the remedies to address market share concerns in the EU will also reduce concentration in the U.S. market.
Q: Did the Commission take piracy into account?
Yes and no. While the Commission recognized that piracy does exist and has an impact on sales, it did not see the merger as a rational reaction to piracy. However, the Commission had piracy on its mind when limiting Universal's market share. The Commission concluded Universal could have used a larger market share to push prices higher or "worsen licensing terms" for digital services - thus leading to more piracy.
The list of local EMI entities (and one Universal label) to be sold:
- EMI France (featuring the David Guetta catalogue, Milow and Colonel Reyel);
- EMI Spain (featuring Macaco, Bebe, Luz Casal, Pablo Alboran and Heroes del Silencio);
- EMI Portugal (featuring Madredreus, Mariza and renowned Fado artists such as Carmane and Caminho);
- EMI Belgium (featuring Clouseau, Ozark Henry, Buscemi and Novastar);
- EMI Denmark (featuring Kim Larsen, Christophe, Bjornskov and Turboweekend);
- EMI Sweden (featuring Lasse Stefanz, Magnus Uggla and Eric Amarillo);
- EMI Norway (featuring Madrugada and Silvert Høyem, Lene Marlin and Morten Abel);
- EMI Poland (featuring Gregorz Ciechowski, Republika, Bajm, Namaam and Budka Suflera);
- EMI Czech Republic (featuring Tri sestri, Orlik, Kabat and Lucie Bila);
- Universal Greece (featuring Eleftheria Arvanitaki, the Goin' Through Group and Nikos Vertis).