Warners to fight EMI sale to Universal

March 2012

Record labels

On his final day as Chairman of the Warner Music Group, Edgar Bronfman Jr has confirmed the World’s  third biggest music rights company would join with the independent sector fight ‘tooth and nail’ against the proposed merger of the EMI record companies with the market leader Universal Music Group. Saying that allowing Universal to take ownership of the EMI record companies “would create what I call a super-major that would control not only the future of recorded music but the future of all digital media”. According to the Wall Street Journal, he continued: “I think it’s dangerous, I think it’s problematic and I think it’s got to be stopped. It does strike me as hubris, particularly for Universal to think it’s going to be easy to buy EMI, and frankly to think they can buy EMI at all”. The position was subsequently confirmed by Warner Music’s CEO Stephen Cooper. Competition regulators in the EU. USA and elsewhere will be noting this with interest!

And indie labels trade body IMPALA has repeated its opposition to the planned merger after Universal formally submitted its bid proposals to the European competition regulators. IMPALA’s Executive Chair Helen Smith said: “The clock has finally started ticking in Europe. Ultimately we expect this to lead to an outright rejection of both the Universal/EMI and Sony/EMI mergers. Keeping the online market as open as possible is essential for competition and for responding to piracy, as well as other market problems. Turning music into a two-horse race would hamper the natural development of the market and increase prices. No level of divestments or behavioural undertakings would prevent that from happening”.

The major remains confident it can win approval from European regulators, despite EC officials having previously expressed concerns about the further consolidation of the music industry, and amidst strong opposition to the deal. A combined UMG would control nearly 40% of the global recorded music market, rising to 50% in some territories such as France.

CMU Daily reports that Universal will argue that the music industry has moved on since the last time European competition regulators considered a major merger (Sony and BMG which they allowed although this was initially challenged successful in the European Court of Justice), and that therefore its latest acquisition should be approved, despite officials previously expressing concerns about even the firm’s current size the last time it expanded through a big takeover. The company will also likely argue that in the all important digital domain prices are determined by the big download platforms, mainly iTunes, and possibly that while piracy remains rampant price rises will always be limited to an extent by the availability of free illegal content, and that the indies have proven their ability to compete via Merlin, and finally that Universal has a good record of licensing new digital ventures.

Officially Universal expects both US and European regulators to pass its EMI deal without remedies, though most outsiders reckon that the EC, if only to be seen to do something, will demand the combined EMI/Universal offloads some of its assets in order to win deal approval, maybe a sizable chunk of catalogue (such as the Virgin divisions) and perhaps the VEVO business, through which Universal arguably controls an important route to market for content owners. A few in the indie sector, meanwhile, remain optimistic the deal may be blocked outright.

The outcome of the Sony consortium’s takeover lf EMI’s music publishing division seems less problematic although competition regulators have been examining the role of collection societies in some detail recently.

It is thought that Warners would still bid for EMI’s recorded music division if UMG are prevented from  completing a takeover, fearing that otherwise Sony and UMG would be the only two ‘majors’ with Warners relegated to a ‘mini-major’ status.


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