The FTC is reviewing Citigroup's sale of EMI's recorded music and publishing divisions, according to a New York Post report.
The sale of EMI's divisions - recorded music to Universal Music Group for $1.9 billion and music publishing to a Sony/ATV-led group for $2.2 billion - must first pass regulatory scrutiny. As the FTC reviews the sale in the U.S., the European Commission will look at the sale's impact on competition in Europe. The Justice Deparment, fresh off a review of the scuttled AT&T-T-Mobile merger, is now looking at Verizon's deals for Spectrum with cable companies, according to a Bloomberg report.
Independent music association Impala quickly came out against the deals last month. Helen Smith, executive chairman at Impala, told Billboard various mergers over the years have already harmed the marketplace. Smith argues Universal is already "beyond the size deemed acceptable" the last time the Commission looked at the company in 2007.
Universal is expected to have a tougher time winning regulatory approval than Sony/ATV, and the European Commission is expected to be a tougher challenge than the FTC. Vivendi and UMG have said they will sell 500 million euros ($685 million) worth of non-core UMG assets, which would help finance the deal. But sources say they have no intention of divesting core recorded music assets to help win over regulators. Impala's Smith doesn't believe divestments would sway regulators. "It's clear Universal hopes divestment might make regulators approve the merger, but I can't imagine that will work."
Both the FTC and the European Commission will have to answer the difficult question, How big is too big? A major label source had previously noted to Billboard.biz that Universal-EMI's combined global market share would be 36 percent, under the 40-percent threshold that usually causes concern for regulators.
Regulators will also look at the market power a larger Universal will be able to wield. In its defense, Universal can argue that a growing digital marketplace has given it less control over prices and less power over retailers than it previously enjoyed in the heyday of the CD. While in theory it can refuse to license its music to stores like iTunes, in practice the value of that sales channel limits Universal's leverage. The company has more leverage in choosing which new business models to support, however. Combined with EMI, Universal's catalog would be a must-have for just about any music service wishing to launch.
The Federal Trade Commission refused to comment on the report.