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EU Greenlights Sony's Lane in Complex EMI Deal

By Erika Morphy
Apr 20, 2012 10:20 AM PT

The European Commission's competition authority has given an investment group led by Sony the go-ahead to acquire EMI Group's music-publishing division for US$2.2 billion. The commission's approval is conditioned on Sony, which is partnering with ATV in this transaction, selling certain music assets and changing some business practices.

EU Greenlights Sony's Lane in Complex EMI Deal

The other part of the complex transaction -- Universal Music Group's acquisition of EMI's recorded music division for $1.9 billion -- is still under consideration by regulatory authorities in Europe. In March, the EU announced it was launching an in-depth probe into that part of the deal, noting that the combined entity would be close to twice the size of its nearest competitor in Europe. That decision will be made by Aug. 8.

Pricing Surprise

When Citigroup announced it was selling EMI in a two-part, combined sale for $4.1 billion last year, it was the pricing that raised eyebrows, as well as the very real question of whether regulatory authorities would approve a deal that would increase Universal Music Group's reach to such an extent.

Indeed, various factions in the music industry on both sides of the Atlantic have raised strenuous objections. Outgoing Warner Music chairman Edgar Bronfman Jr. reportedly called the deal "dangerous" and urged regulators to put a stop to it. Artists' unions in the U.S. have also opposed the deal.

No Longer Gatekeepers

One of the reasons for the opposition to the deal is the argument that such consolidation would limit the introduction of new music to the market, Ryan Radia, an analyst with Competitive Enterprise Institute, told the E-Commerce Times.

"Increasingly, bands are self publishing. For a few hundred dollars, any aspiring artist can record fairly close to studio-quality music," he said. "So the notion that record labels are a bottleneck or gatekeeper to the market no longer holds true in 2012."

With its decision, EU may have recognized that the actual leverage that record labels possess now is, if anything, in a state of decline, Radia noted.

Not that the competitive issues are that straightforward in a deal of this size and complexity, he added.

"All decisions about whether to block or allow a deal include a margin of error, and even a deal that appears to be beneficial to competition just might not be," Radia explained. "In this case, the EU has signified that even under its relatively rigid framework for evaluating proposed mergers and acquisitions, the likely competitive threat posed by this deal is not that great."

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