EU May Break Up Sony, BMG Units After Ruling Overturns Merger Associated Press
July 13, 2006 8:13 a.m. http://online.wsj.com/article/SB115277849603505589.html?mod=technology_main_whats_news BRUSSELS The European Commission Thursday said it could break apart the music units of Sony Corp. and Bertelsmann AG, after it reevaluates their merger. The commission cleared the companies to create Sony-BMG Music Entertainment in 2004, but a European court earlier Thursday overruled the commission's decision and ordered the regulator to reassess the merger. "The effect of today's ruling is that the parties will now have to re-notify the venture, and the commission will have to conduct a reanalysis of the merger," said the commission's antitrust spokesman, Jonathan Todd. The commission has two months to appeal the court's decision. Mr. Todd said the regulator will study the decision before deciding whether to file an appeal. The Court of First Instance -- the European Union's second-highest court -- backed a challenge by the independent record label group Impala, saying regulators didn't properly show in 2004 that the new company wouldn't have a monopoly position. "The commission did not demonstrate to the requisite legal standard either the nonexistence of a collective dominant position before the concentration or the absence of a risk that such a position would be created as a result of the concentration," a court statement said. Bertelsmann said operations at BMG Music Entertainment, its joint venture with Sony, shouldn't be threatened by the decision. "Today's ruling won't have any impact on the continued existence of the joint venture Sony BMG," Bertelsmann spokesman Oliver Fahlbusch said. Mr. Fahlbusch said the company is "studying the judgment carefully and shall discuss the next appropriate steps with the European Commission." The companies have seven days to resubmit antitrust documents to the commission for the merger of their music units, he said. "Their lawyers will have to...start getting ready," Mr. Todd said. The European Commission had unconditionally approved the 50-50 joint venture between Japan's Sony Music and BMG, the German media company's music unit, in July 2004 after finding insufficient evidence the deal would harm consumers. The deal brought Sony artists like Aerosmith, George Michael and Barbra Streisand and BMG's Avril Lavigne and Elvis Presley under one roof. It also reduced the number of music "majors" from five to four. Sony and BMG argued they needed to join forces to deal with declining CD sales and the threat from illegal downloading on the Internet. Regulators had assumed that there was no record industry monopoly because there were a wide variety of products on the market and the absence of open disputes between the five largest companies. But the court found they didn't properly support a theory that promotional discounts ultimately prevent a monopoly occurring. "The elements on which that argument was founded were incomplete and did not include all the relevant data that ought to have been taken into account," the court statement said. "They were therefore not capable of supporting the conclusions drawn from them." It also said regulators were wrong to rely on the absence of evidence that record companies had used retaliatory measures in the past. The court said that it found proof of "effective deterrent mechanisms" such as the possibility of hurting an errant record company by excluding it from compilations. And it criticized both the Commission and Impala for their conduct during the court case. Impala's actions had slowed down the case, it said, ordering it to bear one quarter of its own costs. Universal Music holds the top Music spot in Europe, with Sony-BMG pulling ahead in the U.S. The rivals control about a quarter each of the $32 billion global music market. The other two majors are EMI and Warner Music, with about 30% of the global market between them. Four years ago, EMI and Warner scrapped a proposed merger in the face of EU charges that fewer majors could reduce competition and lead to higher prices and less choice for consumers. The two have recently been locked in a takeover stalemate as each has rejected offers from the other. Shares in EMI plunged 9% after the ruling cast doubt over the future of the U.K. music company's merger talks with Warner Music. Sony operates a new music-downloading service called Sony Connect, while Bertelsmann's RTL TV and radio group operates in Germany, France, Belgium, Luxembourg and the Netherlands. There were worries that they could hamper competitors by restricting access to their stable of talent. ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
