Universal Music-EMI Deal Approved by European Union
Universal Music-EMI Deal Approved by European Union

After market testing Universal Music Group's remedies package for its proposed acquisition of EMI, European Union regulators and UMG are in discussions to add global rights divestitures to the package, according to sources.

Currently, the UMG's divestment offerings include the European catalogs of Parlophone, Chrysalis, and Sanctuary. That means if Parlaphone was sold in Europe, the purchaser would own the rights to Radiohead in Europe, but the band would remained licensed to UMG for the rest of the world. In the latest twist, it is conceivable that UMG will need to view divestments on a global basis. So, for example, it could sell Parlophone, and perhaps some or all of its rights globally, which means whoever bought the label could have Radiohead for the world.

Pressure Mounts For Universal Music To Make U.S. Concessions on EMI Deal

Of course, now that discussions are focusing on including the divestment of global rights of some catalogs, exactly which catalogs are in the package could change again as UMG may try to pull some concessions off the table since it is upping the ante by adding global rights.

These discussions follow the market test of the concessions package submitted by UMG by EU, who sent the package and a questionnaire to more than 50 competitors, digital services and interested parties. According to a source, except for a minority that included Impala and the Warner Music Group, "a majority of participants in the market testing had no issue with
the current divestment package or found it to be sufficiently competitive."

So if the packaged was market tested and okayed by a majority and naysayed by a minority, why has the discussion turned to adding global rights? That question remains unanswered but EU regulators often move to the beat of their own drum. While regulators are required to market test remedies packages, they are under no obligation to listen to what competitors say.

Updated: UMG-EMI Divestment Package Revealed: Universal to Keep the Beatles

For example, when Universal Music Group bought BMG's music publishing back in 2006 to create what was then the biggest publisher in the world (before Sony/ATV and EMI Music Publishing came together), more than 50 competitors gave UMG's concession package a thumbs down. The EU then had UMG tweak the package by adding a catalog or two to be divested and went on to approve that merger without market testing the revised package a second time.

On the other hand, when the Sony Corp. of America-led consortium was going through market testing for its then-pending acquisition of EMI Music Publishing, after the first test it had to add global rights to the Virgin catalog, which initially included only selling Virgin's European catalog. After adding a few current songwriters, the package then went through a second market test and the EU subsequently approved Sony's acquisition of EMI Music Publishing.

Universal/EMI: Deal Looks Likely to Be Approved, But at What Cost to UMG?

Its unclear if the EU will market test the revised UMG package a second time or not; but once the revised package is set and the market testing is done the EU still has to decide whether it will approve the acquisition.

According to guidelines, The EU has until Sept. 9 to make that decision, although it has the flexibility to extend that deadline. However, if the deadline is extended, payment for EMI is due on Sept. 10, which sources say could put UMG in the position of paying for its acquisition before it knows whether it owns the label or not.

Senators' Letter on Universal Music-EMI Deal Warns of 'Significant Competition Issues'

While all eyes are on Europe, the FTC is said to be diligently working away on analyzing the Universal/EMI deal with its own criteria, which is more slanted towards how a merger will impact the consumer and less concerned with how it might impact competitors. Recently, however, two Senators Herb Kohl, D-Wis, and Mike Lee, R-Utah, the chairman and the ranking member of the Senate Judiciary Antitrust Subcommittee respectively, sent a letter to the FTC, urging the agency to also consider how the deal will impact competitors and digital music services.

Universal Music could not be reached for comment at press time.

(Additional reporting by Andy Gensler)