EU OK's Universal purchase of British label EMI

The Associated Press, Friday, September 21, 2012, 5:43am (PDT)

BRUSSELS (AP) — Universal Music Group can buy the famed British music company EMI, including the hugely lucrative Beatles catalogue, the European Union's competition regulator said Friday, but must jettison some of the famed label's other big acts, including Coldplay and Pink Floyd.

Among EMI's assets that must go are Parlophone, home to those two British bands as well as Kylie Minogue and David Bowie. The Beatles, which is part of Parlophone, was exempted.

Universal will also have to sell off EMI's classical music divisions, its French and other local branches and labels that are home to Depeche Mode and The Ramones.

EU Competition Commissioner Joaquin Almunia said that the fact that the companies involved trade in music made the case a particularly emotional one.

"This has been one of the most difficult discussions in my life as commissioner for competition because of ... the existence not only of an industry — we are used to dealing with mergers between companies in very different sectors — but the existence of a cultural dimension," said Almunia.

The EU's approval is just one hurdle cleared for Universal, which already represents Jay-Z, Nirvana and U2. The $1.9 billion purchase of EMI's recorded-music division, where talent is nurtured, still needs to get the nod from the U.S. Federal Trade Commission.

The Universal deal is one part of the break-up of EMI. Regulators have already allowed a group led by Sony Corp. to buy EMI's music publishing arm for $2.2 billion.

Universal's rivals, like Warner Music and small independent labels, have strongly protested the deals, saying they could squeeze out other players.

"This decision has finally put a freeze on Universal's ability to expand further and sets a benchmark for constraining abusive behaviour across the whole market," Helen Smith, executive chair of Impala, an industry group for independent labels, said in a statement. "Following the approval of the Sony/EMI merger, however, this decision nonetheless reinforces what is already a powerful duopoly.... Artists and consumers will ultimately pay the price."

As initially proposed, the deal would have given Universal, which is owned by French entertainment and media company Vivendi SA, 40 percent of the U.S. market and made it twice as big as the next largest competitor in Europe.

Universal's average market share in European countries would be less than 40 percent after the asset sales, Almunia said.

But if the U.S. also approves the deal, it will mean that the number of major record labels drops from four to three.

Almunia said that was a concern for European regulators, and they are trying to remedy it by insisting that Universal sell about two-thirds of the assets they're getting rid of to one buyer, in the hopes of creating another significant player in the music business, even if it won't be as large as the old EMI — which was already the smallest of the four "majors."

He hinted that the EU wouldn't want to see either Warner or Sony be the buyer of that chunk, although he said that it was up to Universal to decide whom they wanted to sell to.

Universal welcomed the announcement, brushing off suggestions that it is being forced to sell so much of EMI that the deal might not make sense any more.

"Today's approval brings to an end an extensive EU regulatory review and the acquisition will benefit the artistic community and music industry," the company said in a statement. "We are delighted Universal Music will retain over two-thirds of EMI on a global basis, contributing to the accretive nature of the deal."

The company noted that it is acquiring several iconic artists — and particularly the Beatles collection. Almunia said the British sensation's songs were exempted from the Parlophone sale because companies themselves propose asset sales in competition negotiations. The regulator can only then approve or deny the proposal; it does not make its own recommendations for what should be sold off.