IMPALA Asks EU Regulators to Block Sony's $2.6B Deal to Own EMI Music Publishing

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The Independent Music Companies Association said it has "lodged concerns" with the European Commission about the transaction, which it describes as "seismic."

As expected, the Independent Music Companies Association (IMPALA) is formally opposing Sony’s play to become the sole owner of EMI Music Publishing, asking the European Commission to block the deal.

IMPALA had already objected to the deal when it was first announced, but now has gone a step further by filing an objection ahead of Sony’s petition for approval. Sources say Sony is still gathering and readying documents for that filing. The deal values EMI at $4.75 billion.

IMPALA said it has "lodged concerns" with the European Commission about the transaction, which it describes as "seismic." It noted that the deal would double the number of songs Sony controls from 2.16 million to 4.21 million and that, combined with EMI, Sony “would be the biggest and most formidable music company in the world.”

Sony has agreed to pay $1.3 billion in cash and assume another $1.36 billion in debt to buy out the 60 percent owned by consortium partners led by Abu Dhabi's Mubadala Investment Co. and the nearly 10 percent owned by the Michael Jackson Estate.

Blocking the deal would be the best outcome for competition but also for cultural diversity and consumer choice, according to the IMPALA statement.

“No music company globally would hold so much power,” stated IMPALA executive chair Helen Smith. “Sony would be able to dictate terms to online services, dominate playlists, control collecting societies and capture all key routes to market, at the expense of online services, competitors, authors, and consumers. This would be seismic.”

When Sony put together the consortium that would buy EMI back in 2012 -- in a deal that gave the company a 30 percent stake -- the European Commission said it would give Sony too much control and made it sell off what was then referred to as the Rosetta catalog, which had annual revenues of between $25 million to $40 million and was bought by BMG for about $90 million. According to the IMPALA statement, the first Sony EMI deal was approved on the condition that the two companies would be run separately and would not be combined with Sony’s own publishing or recording operation.

However, while Sony and EMI are separate legal entities and while EMI retains a staff, that staff is only financial and oversees Sony’s performance with the EMI portfolio. As its administrator, some of the EMI staff was already absorbed into Sony/ATV, which serves as the administrator for EMI. That means Sony/ATV already negotiates deals on behalf of EMI, performs all marketing functions and effectively runs the two catalogs as one portfolio. In fact, every new signing that Sony/ATV has done since the 2012 EMI deal has been offered to EMI as a joint venture ownership.

In a sense, the one thing that IMPALA is trying to stop is already happening, in that Sony/ATV is already negotiating on behalf of EMI and using the combined clout to strike deals with digital services. Where IMPALA's objection might have merit is that up to now, Sony/ATV and Sony Music Enterprises have been negotiating separate deals and if the European Commission allows the transaction to be completed, Sony could then be in a position to strike deals using the clout of both sides -- publishing and recorded music -- of its music operations.

As to whether Sony would be “the biggest and most formidable music company in the world," it depends on how one looks at the numbers.

On one hand, Sony/ATV's revenue of $1.215 billion, or Sony’s overall publishing revenue of $1.286 billion that includes the administration fee it gets from EMI, is already certainly larger than the $965 million reported by Universal Music Publishing Group in the Vivendi financials for the year ended Dec. 31, 2017. But subtracting Sony’s revenue from its visual/media platform, Sony’s pure music revenue -- including all of EMI -- would total nearly $6 billion, less than the $6.41 billion in overall revenue reported by UMPG’s parent, the Universal Music Group.

(That’s based on adding Sony’s $5.364 million in pure music revenue in the most recent fiscal year with EMI’s $671 million in revenue and subtracting the estimated $48 million that EMI paid Sony as an administration fee. It doesn’t take into account any dividend Sony may have received from EMI’s profits last year.)

But regulators could also take into account factors besides revenue to determine size, such as the number of songs Sony would control or the number of songwriters it would have signed to publishing deals.

When Sony does file its paperwork, the European Commission will assess the proposed transaction and as part of that process. Competitors and other market participants will receive detailed questionnaires to answer, according to the IMPALA statement. After the questionnaires are returned, the commission will then decide whether the transaction would lead to a significant impediment to effective competition and, if so, what it should do.

If the European Commission decides to block the deal, EMI could land back on the market. Or, the commission could decide to let the deal go through and require Sony to sell of some assets like it did last time, putting some conditions on the overall ownership. 

According to some sources, the deal doesn’t require approval from the U.S. regulatory agencies. IMPALA couldn’t be reached for comment and Sony declined comment.