European Commission gives the nod to the UMG/EMI deal

Earlier today the European Commission said yes to Vivendi/UMG’s bid to buy EMI Recorded Music. The full Commission press statement is here . Is anyone surprised at the outcome? Our guess is no. If the Commission didn’t want the deal to go through it would have said so months ago.

In the release there are some big name artists that are part of the Parlaphone sell-off (Coldplay, David Guetta, Tinie Tempah). The statement issued earlier today by the Association of Independent Music’s Chairman and Chief Executive Alison Wenham described these divestments as “the crown jewels of EMI.” But there are also quite a lot of artists and bands being divested whose best days are behind them (Tina Turner, Duran Duran, Jethro Tull, Depeche Mode, Moby) and whose value is going to lessen over time. But, UMG has The Beatles and so the company now has the two biggest UK bands ever (inc. The Rolling Stones) in its stable. Other icons moving under UMG’s control include the Beach Boys, Genesis and Bob Seger. Contemporary big names that pass to UMG include Katy Perry, Emeli Sandé, Robbie Williams, Herbert Grönemeyer, Lady Antebellum and Norah Jones.

The Commission’s insistence on UMG not including Most Favored Nation (MFN) clauses in its favor in any new or renegotiated contract with digital customers in Europe for ten years is fairly significant and levels the playing field a bit. MFN clauses oblige digital customers to extend any favorable term granted to UMG’s competitors to UMG. This commitment, according to the Commission, will allow UMG’s competitors to “negotiate more freely with digital customers.” But few of UMG’s rivals get better rates so there are questions over how big an effect that commitment will have.

Market shares
Vivendi said this morning that UMG will retain “over two-thirds of EMI on a global basis.” If the deal had been completed last year then using Vivendi’s two-thirds figure, UMG’s market share of total recorded company revenues would have been 35.9%, putting it way ahead of SME in second place, with 21.6%, followed by WMG on 15%. For physical/digital music sales only, UMG’s market share would have been 34.5%, SME had a share of 21.9% with WMG’s share at 15.1%.

The increase in UMG’s market share will upset its competitors – IMPALA has already put out a release stating it was disappointed with the clearance of the deal. The question is, will UMG have any bigger sway with digital services than it had before the deal was announced?

Without the divestments and commitments, the Commission said UMG would have been able to impose higher prices and onerous licensing terms that could have negatively affected digital music providers’ ability to innovate. The divestments and commitments have removed the Commission’s concerns. Boldly, the Commission said “the transaction will have no negative impact on consumers.” But there’s always scepticism over market influence when a big company gets bigger, particularly as the music industry has so few companies operating in it already.

Certainly rubbing their hands will be the likes of BMG Rights Management and perhaps WMG. It was confirmed earlier this week that Sony/ATV had begun the divestment process for its EMI Music Publishing deal. The Commission’s decision today suggests a lot of deals will be made in the coming months. If BMG does make a few acquisitions then by making one major bigger the Commission just may have kept the number of major music companies at four.

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