European Commission and U.S. Federal Trade Commission clear Universal’s acquisition of EMI’s recorded music business

On 21 September 2012 both the European Commission (“Commission”) and the U.S. Federal Trade Commission (“FTC”) cleared the acquisition of EMI’s recorded music business by Universal. That merger brings together two of the four major global record companies.

On 17 February 2012 Universal notified the Commission of its proposed acquisition of EMI’s recorded music business. On 23 March 2012 the Commission opened an in-depth investigation and on 19 June 2012 issued a statement of objections. Even though the sales of physical music, for example CDs, accounted for the majority of sales in the European Economic Area (“EEA”), the Commission focused its investigation on the wholesale markets for digital music, since they are expected to surpass the sales of physical music in the near future. In these markets, record companies negotiate licensing deals for their music with companies such as Apple or Spotify and Mobile Network Operators (collectively ”digital music providers”) that offer their telephony subscriptions together with music. In its decision the Commission found that the merger would have increased the market power of Universal to such an extent that it would be able to impose higher prices and more burdensome licensing terms on digital music providers. This could adversely affect the providers’ ability to expand or launch new music offerings and consequently result in reduced consumers’ choice not only for digital music, but also for cultural diversity in the EEA. Furthermore, the Commission was concerned that following the proposed transaction, Universal would enjoy excessive market power in relation to its direct customers at retail level.

According to a press release by the Commission, Universal committed to divest its significant assets as a response to the Commissions’ concerns. These divestments include EMI Recording Limited, home to the Parlophone label featuring artists such as Coldplay, David Guetta and Tina Turner (but not the Beatles), and EMI’s classical music labels: Chrysalis (featuring artists such as The Ramones), Mute Records (featuring artists such as Depeche Mode) and others. A number of local EMI entities, e.g., EMI France (David Guetta catalogue) are also part of the divestment package. In addition, Universal committed to not include Most Favored Nation (“MFN”) clauses in any new or renegotiated contracts with digital customers in the EEA for ten years. (These clauses provide that a digital customer has to offer Universal attractive licensing deals on the same terms as it did to Universal’s competitors.)

According to the Statement of the Bureau of Competition by Director Richard A. Feinstein, the U.S. FTC closed its investigation into the proposed acquisition by Universal of EMI Recorded Music since its staff did not find sufficient evidence that the merger would substantially lessen competition in the commercial distribution of recorded music market. The FTC staff did not find sufficient evidence for head-to-head competition in the distribution of music and interactive music streaming services. Furthermore, no sufficient evidence to support the concern that the merger would significantly increase the potential for coordination between recorded music companies was found. The argument that EMI had functioned as a maverick was supported by the fact that no evidence of disruptive competitive behavior on EMI’s side was found.  Feinstein explained that even though the FTC and the Commission worked closely together throughout the investigation, they came to “different conclusions because of different evidence unique to each jurisdiction”. Still the FTC noted that the remedy obtained by the Commission would reduce concentration in the U.S. market too. [Nicole Daniel]