Concerns Over Sony's Market Power Leads Rivals to Urge EU Action on Michael Jackson Deal

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Warner Music Group and independent music company representative Impala are urging the European Commission to review Sony/ATV’s acquisition of the Michael Jackson's estate around whether the deal could produce anti-competitive condition in the marketplace.

Europe has a storied history of forced divestments. When Universal Music Group bought EMI recorded music, it had to sell off both Parlaphone and Sanctuary, among other assets, to appease European regulators. When Sony Corp. led a consortium to buy EMI Music Publishing, the company was made to sell off Virgin Music Publishing and Famous Music U.K as well as other publishing and songwriter catalogs. When Warner Music acquired Parlophone, it agreed to sell assets equivalent to between 25 and 33 percent of that label's value.

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Sony Corp. recently signed a definitive agreement to acquire Jackson’s shares of Sony/ATV for $733 million, which would give it sole control over Sony/ATV. The deal doesn’t impact its ownership stake in EMI Music Publishing, which Sony owns 29 percent of and which the Jackson estate will continue to own 10 percent of. That means the deal is giving Sony full control over Sony/ATV, which generates, depending on exchange rates, an estimated annual revenue of $600-650 million, thanks to an estimated $125 million payout for managing EMI Music Publishing,  as well as $500 million from its own catalog.

While Warner Music Group declined to comment on the development, first reported by Bloomberg News, Impala confirmed that it has serious concerns over the impact of the deal vis-a-vis Sony’s market power.

"The EU effectively set a limit three years ago due to concerns about prices," Impala’s executive chair Helen Smith said in a statement. "It is difficult to imagine how the Sony/ATV deal could secure approval from the European Commission. The buy out would reinforce the market power of the world’s biggest music publisher and give it control over more of the world’s music than before."

Smith pointed out that the EU turned on the heat when Universal Music Group bought EMI Recorded Music. "Universal had to sell two thirds to get EC approval," Smith said. "That’s one the biggest set of divestments in history and highlights what IMPALA dubs ‘a real risk when market leaders get greedy’. Universal also had to accept having its digital contracts monitored for ten years."

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Sony/ATV and the Jackson estate either declined to comment or did not respond to requests for comment. One executive familiar with the deal however tells Billboard that an EU review was expected, as was Impala and Warner's opposition.

"It's what they do when every deal comes up," says one executive in the major label camp. "They like to stir up enough friction so the EU Commission forces the buyer to sell off pieces so they [WMG and the indie labels] get a chance to buy at least some of the assets, even if the original deal was too big for them to play in the original auction."

While many indies agree with Smith -- the EU should at least look at the impact the deal will have on a market-by-market basis, says one top indie executive -- others wonder how this deal changes anything from before.

Even before the contract was signed, Sony/ATV controlled music portfolios which generated $1.2 billion; the next largest publisher is Universal Music Group with about $825 million and then the Warner Music Group with about $475 million, followed by BMG Music Publishing with about $400 million in revenue. There is not much difference in what the Sony/ATV catalog throws by itself -- before you take into consideration its EMI administrative revenue -- than the Warner Music Group.

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The EU already looked at the impact of Sony buying a stake in EMI and since then it has gained control over licensing that catalog, meaning it already has been exerting its clout to get the best deals for both catalogs. Why would this Sony/ATV Jackson deal change anything? Do you think the Jackson estate was holding Sony/ATV back from asking for higher rates before on licensing deals?, Billboard posed to one executive objecting the Sony buyout of the Jackson estate.

Besides, wouldn’t the EU have already investigated the Sony/ATV ownership structure last time and wouldn’t they have discovered the buy/sell agreement and already considered it?

"Its about the control shares," says an executive with one of the companies objecting to the EU. "Control shares weren’t an issue because of the ownership structure, up until now."

"Now with only one owner controlling both the publishing and recorded music operation, there are many territories where Sony will have well over 50 percent of those markets," he adds. "It will increase their collective clout when they are negotiating digital deals for both publishing and the recorded music operations in those markets."

IMPF, an global group representing indie music publishes, also expressed their concern on the deal, saying that the concentration of the catalog in the hands of Sony, would give Sony/ATV even more negotiating power on deal terms.

"IMPF intends to complain to the European Commission over the acquisition which needs to be carefully considered not only on the grounds of the distortion of the market it will cause, and in particular to independent music publishers, but also in the long run, the risk of reduced consumer choice and increased prices," said IMPF president Pierre Mossiat said in a statement.