Bloomberg News

Universal Music Group Rivals, Customers Quizzed by EU on EMI Acquisition

February 28, 2012

Rivals and customers of Vivendi SA’s (VIV) Universal Music Group were asked by European Union regulators whether the company’s acquisition of EMI Group’s recorded music business would allow it to increase prices.

Regulators in Brussels asked whether Apple Inc. (AAPL)’s iTunes, the largest online music store, and others could prevent record labels from coordinating prices, according to a document seen by Bloomberg News. Regulators also asked whether online music retailers could succeed without songs from EMI, including the Beatles and Amy Winehouse, and Universal, which represents Lady Gaga and Rihanna.

Universal last week sought European Commission approval to buy EMI’s recorded music operations, which develop artists and profit from recorded songs. Universal agreed to buy EMI’s recorded music business last year for 1.2 billion pounds ($1.9 billion).

“Please explain whether, in your view, after the acquisition of EMI, Universal would have the ability to raise the price for its recorded music” for music bought online or offline, the EU asked in the questionnaire. The deadline for replies was Feb. 24.

“These questionnaires are a normal part of the process and we are comfortable that we can satisfy any concerns that might be raised,” Universal said in a statement.

Dylan Jones, a spokesman for London-based EMI, declined to comment. The European Commission declined to comment.

Sony-Led Group

Citigroup Inc. agreed to sell EMI Group’s recorded music and publishing businesses in separate transactions for a combined $4.1 billion. The EU set an initial deadline of March 23 to rule on the Universal deal. A Sony Corp (6758).-led group yesterday sought EU approval to purchase EMI’s music publishing operation in a separate deal valued at $2.2 billion. Regulators set an April 2 deadline to examine that purchase.

Impala, a group of independent music companies, said this month that it expects an “outright no” from regulators to the Universal deal because it would increase prices. The group challenged the EU’s 2004 approval for Sony and Bertelsmann AG to create the Sony BMG record label at the EU courts, forcing a reexamination by regulators. The deal was eventually approved in 2007.

Universal’s holdings account for 27 percent of the recorded music market, while EMI represents 9.7 percent, according to Sanford C. Bernstein analyst Claudio Aspesi.

The questionnaire, with more than 100 questions, also sought information on whether the shift to online services had reduced business costs that previously hampered smaller record labels.

Facebook Substitute

The antitrust agency asked if artists could use online services such as Facebook as a substitute for record companies in promoting and distributing their music.

It also asked if it was likely Vivendi would use its ownership of Universal and EMI to bolster its French mobile telephone unit, broadband Internet business, online music service or its games division Activision Blizzard Inc. (ATVI), which makes the “Call of Duty” video game.

Warner Music Group, an unsuccessful bidder for EMI, believes the Universal/EMI deal “would significantly impair the competitiveness of the recorded music and music publishing markets,” Chief Executive Officer Steve Cooper said this month. Warner will lobby against the sale in the U.S. and Europe, retiring Chairman Edgar Bronfman Jr. said last month.

Will Tanous, a spokesman for New York-based Warner Music, declined to comment on the questionnaire. Warner Music has 12 percent of the recorded music market.

The breakup of EMI, owner of Abbey Road Studios, ended a nine-month struggle over the future of the 114-year-old music company. Citigroup Inc. (C) last year seized London-based EMI from investor Guy Hands, who lost almost a third of his firm’s 5.4 billion-euro ($7.25 billion) buyout fund on the company.

To contact the reporter on this story: Aoife White in Brussels at awhite62@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


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