EMI sale might not pass regulatory muster in Europe

Rich Fiscus
12 Nov 2011 16:04

Despite yesterday's report that Citigroup has managed to sell EMI in pieces, the deal still has some major hurdles to clear.
Whenever a coporate acquisition of this scale occurs, it must pass scrutiny from officials in various countries. At least one source is suggesting both parts of this deal, Universal Music Group buying EMI's recording division and Sony Music Entertainment purchasing their publishing arm, will almost certainly be rejected by European regulators.
Helen Smith, who represents an independent label trade association called IMPALA, wrote in an email (via Digital Music News):

Given that Brussels has taken a previous decision that Universal should not be any bigger, we would expect the sale to Universal to be blocked outright, even if it offers to increase the divestments it is prepared to make.

She added, "The same would apply to Sony if it buys EMI publishing."
Don't be fooled by the fact IMPALA represents independent labels. Their lawsuit to block the merger of Sony Music and Bertlesmann Music Group in 2006 was ultimately unsuccessful, but raised significant pressure on EU officals to check the power major labels wield in the market.
It also cost Sony BMG, now known as Sony Music Entertainment, a lot of money defending the deal.
In the intervening years, the labels have continued to hemorrhage money thanks to declining CD sales and trends in download sales and less profitable subscription services. The amount of money it might take to get this deal done could easily be more than either UMG or Sony Music is willing to spend.
On top of that, recent lawsuits challenging their royalty payments for downloads and the anticipation of artists planning to take ownership of their recordings through a clause in US copyright law dating back to 1976 add serious questions about the real value of EMI's assets.
When the dust settles, whether the sales are approved or not, both companies could become shadows of their current selves sooner than most people think.