COMPETITION
Record labels

Sony and Bertelsmann have appealed against an annulment of their joint venture that created the world’s number two music company. In July, the Court of First Instance annulled the European Commission’s decision to approve the venture (see our August Music Law Updates. German media group Bertelsmann said in a statement it and Sony had filed the appeal because “the EU Commission’s 2004 decision to clear the Sony BMG recorded music joint venture was correctly decided on both the law and the facts”. The appeal process is likely to take about a year. Meanwhile the European Commission will concurrently undertake a renewed review of Sony and
Bertelsmann’s original merger proposals (annulment issued by the Court Of First Instance simply overturned the original approval on procedural grounds, it did not actually state whether the merger itself was, in fact, anti-competitive – that is for the Commission to decide anew). Bertelsmann said “parties will be providing current market data and other information requested by the Commission in the next few weeks”.

As European officials closely monitor the music industry, it appears that Vivendi is going to restructure the way it buys BMG Music Publishing from Bertlesmann after EC officials expressed concerns regarding the conglomerates existing plans. Universal Music owner Vivendi successfully bid for the publishing company but the finalisation of the deal cannot go ahead until European officials give the takeover the go ahead (such approval is needed given Universal’s existing music and music publishing assets). Vivendi has proposed a solution to this problem using what is called the “hell or high water clause”. Basically, Vivendi pay the money to a third party, probably a bank, who would pass it on to Bertelsmann. The third party would then actually own BMG Music Publishing, until EC approval is achieved (assuming it is, of course), and then ownership of the company passes to Vivendi. However, EC officials are apparently not very keen on this increasingly used trick. One alternative solution is that Vivendi would pay for the publishing firm, but that Bertelsmann would continue to officially own it, in essence acting as a “custodian” of a company they have actually sold, until regulatory approval is obtained.