The European commission has approved Sony Corp.’s plan to become the sole owner of EMI Music Publishing through its agreement to acquire the shares of Mubadala Investment Company and its consortium partners.
That deal was given the go-ahead despite a furious effort by European independent labels, publishers and trade groups representing them to stop the deal; or at the very least have the Commission force Sony into selling off some assets; as it did the last time when the original deal was announced.
But “the Commission concluded that the transaction would raise no competition concerns in any of the affected markets and cleared the case unconditionally.”
With that ruling, IMPALA, the trade group representing indie record labels and indie music publishers issued a statement strongly disagreeing with the EU.
“This goes against the regulator’s own precedents,” IMPALA’s executive chair Helen Smith said in a statement. “In 2012, it ruled that divestments were required for Sony to become a minority shareholder. Now that Sony is acquiring 100% control of EMI, it is being given unconditional approval. This is inconsistent and simply doesn’t stack up. It is a poor advert for European merger control and sends an alarming message to independent businesses in all sectors, not just music.”
According to the press release issued by the EU, the deal was approved under the EU merger regulation, with the investigation into the deal found that it “raises no competition concerns, in particular, as it will not increase Sony’s market power vis-a-vis online platforms; because it doesn’t lead to any increase in market share.
Sony already had joint control of EMI with Mubadala; and also acted as its administrator, the commission assessed whether Mubadala has acted as a constraint on Sony’s ability to leverage across both recording music and music publishing rights and, in particular.
The Commission noted that since Sony/ATV and EMI Music Publishing didn’t compete for new signings — because they have been jointly sign new artists — the merger would not “raise competition concerns, with regards to music publishing services to authors.
As for the exploitation of its copyrights offline, the Commission noted that Sony/ATV already acted as the licensor for EMI’s catalog and that most pricing and licensing terms are usually handled by the collecting societies.
Looking at online use, the Commission decided that any leverage that Sony could extract for better terms were already there, due to the initial deal, so the sole ownership “would not change the current situation.”
Finally, it said that if Sony were to attempt to degrade the value of the publishing rights to benefit its recording division, the Commission said authors could leave Sony/ATV and sign deals elsewhere.
According to sources, the deal doesn’t need regulatory approval in the U.S. so with the EU approval, Sony can move to close its acquisition of EMI in a deal that gave the company a $4.75 billion valuation.
“This is bad news for the music sector and the digital single market,” Smith continued in a statement. “Sony will have a near monopoly over the charts and the whole music value chain will lose out as a result. Songwriters, composers, independent labels and publishers, digital services, and of course music fans, will all be worse off. This decision has dealt a significant blow to innovation and cultural diversity in Europe.”
While Smith said it would review the ruling very carefully, she added, “This is simply too important to let go. It undermines eighteen years of robust merger control in the music sector.”
But for now that comment stops short of saying IMPALA would appeal the ruling. If IMPALA decides to move forward and appeal, it wouldn’t be the first time it continued to challenge an EU decision on a Sony merger.
In 2004, Sony and BMG announced a merger, which the EU approved that year. IMPALA appealed the decision to the “Court of First Instance,” a predecessor to the EU’s General Court, and in 2006 — after the 50/50 joint venture had been in operation for two years — that court agreed with IMPALA that the EU had conducted an inadequate competitive assessment and reversed the EU’s decision.
This is still considered a very rare occurrence, and in 2007 the reversal on the merger was set aside by the European Court of Justice. The process would play out all over again the next year when Sony agreed to buyout BMG completely, with IMPALA fighting but failing to stop part two of that deal.