Following word June 17 that European Union Competition Commissioner Mario Monti will recommend approval of the proposed merger of Sony Music and BMG, independent labels, retailers and consumer groups

BRUSSELS -- Following word June 17 that European Union Competition Commissioner Mario Monti will recommend approval of the proposed merger of Sony Music and BMG, independent labels, retailers and consumer groups attacked the provisional decision and expressed surprise that Monti placed no conditions on the deal.

Monti's spokeswoman insisted June 18 that it was "premature" to suggest that a decision had been made, but refused to comment further.

The EC must announce a final decision on the merger by July 22. Although Monti's decision is unlikely to change, there are a number of key steps before the merger is formally cleared. These include meetings of the advisory committee of EU representatives, an inter-service consultation with all interested EC directorates-general (internal market, enterprise, education and culture, consumers), and translation of the text (which could be up to 300 pages) into the EU's 20 official languages. The issue is expected to be formally cleared at the regular EC meeting July 14.

The merger is still under anti-trust review in the United States.

European independent labels trade body Impala expressed outrage at Monti's reported endorsement of the deal. Long a vociferous opponent of industry consolidation, the Brussels-based trade body questions how European regulators could wave through the merger despite having identified problems in the sector.

Sources suggest that the anti-trust commissioner concluded that there was not sufficient evidence of price collusion and market dominance among the music majors to justify blocking the merger. This came despite the EC's Statement of Objections to the merger, which last month accused the five companies of colluding in a tacit cartel.

"We were positively shocked by the extent of the Commission's objections," says Horst WeidenmŸller, Impala board member and CEO of Berlin-based dance-music label!K7. Monti's decision, he says, "defies all logic."

Michel Lambot, Impala president and co-chairman of Brussels-based independent PIAS Group, warns that EU approval of the deal would leave regulators open to claims of overriding commercial interests. "Any turnaround would do nothing to counter the image that the EC's agenda is dictated by giant commercial interests rather than the interests of European citizens," says Lambot. "It is Mr. Monti's responsibility to correct this, and we will use all options open to us to ensure that this happens."

"The whole affair is completely scandalous," says Patrick Zelnik, Impala VP and president of French label Na•ve. "What is the point of having an anti-trust watchdog if the market is left unrestrained?"

Earlier in the week, representatives of Impala were involved in closed-door hearings in Brussels on the proposed merger. Others who spoke out against the deal included Apple Computer, whose iTunes service is a rival to Sony's Web platform Connect, and retail group GERA, which warned that a merger would reduce consumer choice and limit artistic innovation.

Sony and BMG had no comment on word of Monti's approval.

EC insiders say Monti decided not to block the merger because the evidence of market collusion among music majors would not have survived a court challenge. The EU's anti-trust procedures have changed since 2000, when the EC's initial objections were enough to force Warner Music and EMI to abandon a planned merger. Now the EC needs concrete evidence and solid economic analysis if it is to block any joint ventures. If not, the decision could be challenged at the EU Court of Justice, and overturned. "It would not have stood up in the court," says one EU official. "We can't block a merger just because there is a bad feeling about it. We have to show it."

In 2002, the EC lost an EU Court of Justice case over an early collusion decision in the package-tour sector, and was warned that any future actions had to be fully justified. Chastened by the court ruling, Monti adopted new rules for anti-trust investigators, demanding stronger evidence in cases that are blocked.

The failure to collect clear evidence is also cited as the reason the Sony BMG merger was cleared without concessions. Officials say that moving from five to four majors in the music industry was not in itself reason enough to block the merger or attach conditions. The only concessions will be those already agreed upon to ensure that independent music companies are able to access Sony Connect.

Since 1990, the EC has conducted 116 in-depth merger investigations, but only 24 have been cleared unconditionally, most without any Statement of Objections. In 2003, the Commission made 222 merger decisions; only eight of those were taken after in-depth investigations, and of those, six mergers were cleared, with conditions.

According to the IFPI, Sony and BMG claimed a combined 25.1% of the world music market last year (11.9% for BMG, 13.2% for Sony). If sustained, it would make it the market leader, ahead of Universal Music, at 23.5%; EMI, 13.4%; and Warner Music, 12.7%.

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