The European Commission formally revealed Thursday (March 1) a four-month indepth investigation into the 2004 merger between Sony and Bertelsmann's music units, as revealed yesterday on Billboard.biz.

The Commission, the European Union's antitrust authority, said it needed to examine whether the deal would create a monopoly position for the label, and it would take a final decision by July 2.

"The in-depth inquiry will permit thorough analysis of the complex information required in order for the Commission to ascertain whether or not the merger strengthens or creates a dominant position in these relatively concentrated markets," the Commission said in a statement. "The opening of an in-depth investigation does not prejudge its final result."

The deal is being re-examined eight months after the Court of First Instance - the EU's second-highest court - annulled the Commission's original July 2004 decision to clear it, citing "manifest errors" in how officials examined the possible impact of the merger. The 2004 merger created Sony BMG, the world's second largest record label behind Universal, but if the Commission fails to clear it a second time round, it could force the companies to split their three-year-old entity.

The Commission said that because this was a re-examination, the probe would be carried out under the EU's earlier merger regulation, dating back to 1989, and not the regulation that was agreed after the Sony BMG deal was initially cleared. The enquiry will also look at whether the merger strengthens or creates a dominant or collective dominant market position in the EU as it stood before May 1, 2004, when there were just 15 member states rather than the 27 now.

However, the Commission will still evaluate the transaction in the light of current market conditions, taking into account developments since 2004, including the growing sales of online music. During the probe, the Commission can demand classified company data, and hold hearings involving both the merging parties and other interested groups. It also has the authority to block the deal or demand changes to the merged company before granting its approval.

Under the 2004 deal, Bertelsmann contributed the Bertelsmann Media Group (BMG) with its labels Arista, Jive, Zomba and RCA. Sony contributed its worldwide - with the exception of Japan - recorded music business which had been operated by Sony Music Entertainment and whose labels include Columbia, Epic and Sony Classical. Last October, Sony and Bertelsmann appealed the Court of First Instance decision at the EU's top court, the Luxembourg-based Court of Justice.

Last year's Court appeal was originally lodged by independents' group Impala, which said the merger would muscle out smaller labels and prevent newcomers from breaking into the market. They immediately welcomed the Commission's decision to open a second stage probe, and called for a wider investigation into the implications. "Last time around, the focus was mainly on price," the group said. "Impala's members have raised specific concerns about their reduced market access. These include the collective dominance of the majors and co-ordination of competitive behavior in retail, radio and television, press and other media, as well as in the vital on-line market."

In a meeting last week with EU competition commissioner Neelie Kroes, Impala president and Naive label head Patrick Zelnik also asked for the investigation to address issues such as cultural diversity, the role of creativity and small business, vertical integration, links with sister publishing companies, unfair leveraging of repertoire and review of Sony BMG promises made during the original inquiry.

The Commission move also comes a week after Impala agreed a deal with Warner setting out a series of pledges on markets in the event that Warner makes an approach to buy EMI. "Impala expects the Commission to roll that out as a template for Sony BMG," the group said.

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