FTC, EC Approve Universal’s Acquisition of EMI Recorded Music

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The FTC announced on September 21 that it had closed its investigation of the proposed acquisition by Vivendi, S.A., parent company of Universal Music Group, of EMI Recorded Music without taking any action. Universal is the largest recorded music company in the world. EMI is the fourth largest.

On the same day, the European Commission (EC) also approved the transaction; however, approval was conditioned upon the divestiture of EMI's Parlophone label and numerous other music assets on a worldwide level. The EC focused its investigation on the markets for digital music and had concerns that the transaction, as originally proposed, would have allowed Universal to significantly worsen the licensing terms it offers to digital platforms that sell music to consumers. Universal’s commitments resolved the EC concerns.

The proposed merger would bring together two of the four so-called global "major" record companies, leaving only three majors, the EC said in a statement. The EC was concerned that, following the merger, Universal would enjoy excessive market power vis-à-vis its direct customers, who sell physical and digital recorded music at retail level. In particular, the EC focussed its investigation on the markets where record companies license their music to digital retailers such as Apple and Spotify.

The EC found that the proposed transaction could have increased Universal's size in a way that would likely have enabled it to impose higher prices and more onerous licensing terms on digital music providers. This could have negatively affected the possibilities for innovative providers to expand or launch new music offerings and would ultimately have reduced consumers' choice for digital music, as well as cultural diversity in Europe.

Neither the FTC nor any commissioner commented publicly on the matter; however, FTC Bureau of Competition Director Richard Feinstein issued a related statement. “After a thorough investigation into the likely competitive effects of the merger, Commission staff did not find sufficient evidence that the acquisition would substantially lessen competition in the market for the commercial distribution of recorded music,” Feinstein concluded.

The statement noted that, while "the Commission did not conclude that a remedy was needed to protect competition in the United States … the remedy obtained by the European Commission to address the different market conditions in Europe will reduce concentration in the market in the United States as well."