The European Commission has cleared for the second time the merger of Sony and Bertelsmann's recorded music businesses to create Sony BMG.

In a statement, the Commission -- the European Union's antitrust authority -- said, "the transaction would not create or strengthen a dominant or collectively dominant position."

The Commission had first cleared the merger in 2004, but that decision was annulled by a European court ruling last year. The court then ordered the Commission to conduct a new investigation into the company.

"This investigation represents one of the most thorough analyses of complex information ever undertaken by the commission in a merger procedure," said EU competition commissioner Neelie Kroes. "It clearly shows that the merger would not raise competition concerns in any of the affected markets."

She said the investigation looked at millions of individual pieces of data. "It analyzed all retail net prices, discounts and wholesale prices for all CD chart albums sold by all major record companies to all of their customers," she said. "This was an enormous exercise. We found no evidence to support any theory of actual or likely anti-competitive effects of this merger."

In addition, the market for the licensing of recorded music in digital format, which was nascent at the time of the 2004 investigation, was fully analyzed in the light of its development since 2004.

The Commission also investigated all the various theories of price and non-price related coordination between major record companies provided by other market players. These theories included alleged coordination on budgets, on the pricing of each title, on pricing policy, on chart album prices, on access to retailers, on access to airplay, on chart rules, on release date, on coordination at the level of publishing activities and alleged negative impact on cultural diversity.

The new investigation was carried out using the same methodology as the 2004 probe, which meant that the Commission had to examine how the merger would affect the market of the-then 15 EU member states rather than the current 27.

However, the investigation also offered some tangible evidence of the effects of the merger -- whereas in 2004, the Commission could only speculate on the market impact. The Commission said it was therefore able to evaluate "the actual impact of the merger on the market since 2004" and "was not limited, as is usually the case, to an analysis of likely effects on the market in the future".

The deal to create the world's second largest music company behind Vivendi's Universal Music Group was initially cleared by the Commission in July 2004. But in July last year the EU's Court of First Instance annulled the decision, ruling that the Commission had not properly investigated the potential consequences of the merger. The court decision effectively put on ice any other plans by the music majors for further consolidation: merger initiatives by EMI Group and Warner Music were shelved prior to Terra Firma's eventual purchase of EMI.

The 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 had said the Commission failed to show that the-then five music majors were not colluding over market prices or that they would not afterwards.

Impala reacted to Wednesday's announcement by calling for a formal inquiry by the European Ombudsman into why the deal had been cleared a second time without remedies. The group described the decision as "indefensible", and said the Commission had ignored the Court ruling. Impala also refused to rule out an appeal, and said there was "a clear case" for claiming damages against the Commission.

"We never got an explanation for the Commission's U-turn last time around," said Impala President Patrick Zelnik. "The Commission has ignored the simple fact that four companies control 95% of the music most citizens hear on the radio throughout the world. What kind of a message does this send to European citizens?"

Impala Chairman Martin Mills said the Commission had ignored the independents' evidence on anti-competitive behavior in retail, radio and television, press and the online market.

"It is a lost opportunity for Europe's artists and entrepreneurs," Mills said. "This just doesn't make sense."

Last October, Sony and Bertelsmann appealed the Court of First Instance decision at the EU's top court, the Luxembourg-based Court of Justice. The appeal could last two years, but the Commission's new decision now effectively makes it moot.

The clearance for Sony BMG comes after the Commission gave the green light in May to Universal Music Group's proposed 1.63 billion euros ($2.3 billion) takeover of Bertelsmann's BMG publishing arm. The deal combined the third and fourth biggest music publishing catalogues, resulting in a 22% market share, putting it just ahead of current market leader EMI Group.

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