While things have been a bit quiet recently around the Universal
Music Group's proposed acquisition of EMI, expect them to heat up
toward the end of next week and especially after the Labor Day
weekend.
Universal/EMI: Deal Looks Likely to Be Approved, But at What Cost to UMG? Whether or not UMG will win approval should be decided by the end of September, according to sources.
As it stands, the only recent activity (apart from the
deal being approved in Canada)
occurred when Robert W. Goodlatte, R-Va., and Melvin L. Watt,
respectively the chairman and ranking minority member of the
Congressional Judiciary Committee's Subcommittee on Intellectual
Property, Competition and the Internet, sent a letter to the heads
of the two majors involved in the deal -- UMG chairman/CEO Lucian
Grainge and EMI Group CEO Roger Faxon -- and to Warner Music Group
chairman Stephen Cooper, asking five questions about the merger, as
first reported by the
New York Times.
Senators' Letter on Universal Music-EMI Deal Warns of 'Significant Competition Issues'
The congressmen said they were moved to send the letter due to
the competing viewpoints that have emerged over the proposed deal.
On the one hand, some say that the deal would give UMG digital
pricing power that the record companies once exercised over CDs,
albums and cassettes; and it could potentially impact digital
innovation and distribution. But proponents of the merger counter
that the record labels have lost much of their traditional power due
to the emergence of digital distribution and due to piracy; and
that UMG's ownership of EMI would invigorate the label and result in
significant investments and yield synergies to benefit the future
of the music industry.
The letters reportedly
asked whether the music industry has unique characteristics that may
increase or reduce concerns about the proposed deal. The other
questions asked were: How would competition be impacted?; What
benefits or harms are there for the consumer?; What role does
piracy play as a constraint on the ability of record labels to raise
prices or otherwise act anti-competitively?; Do powerful players
like Apple place constraint on the ability of UMG/EMI to raise
prices to consumers?
The letter was sent on Aug.
21 and they are asking for a response within 14 days, which would be
Sept. 4. Even though the House of Representatives sent the letters
to the heads of the three majors late in the process -- or two
months after the
Senate held a hearing on the merger
-- sources familiar with the situation say that the letter is
really more along the lines of the sub-committee going through the
motions as part of its general oversight over these issues.
Highlights From Azoff, Grainge, Bronfman Testimony in Today's Universal-EMI Senate Hearing When UMG and the EU were last involved in conversations, it sounded like
EU wanted UMG to sell off its Parlophone catalog on a global basis.
But UMG may have been trying to substitute another catalog for
Parlophone, since the ante was upped with the inclusion of global
rights. Those conversations are expected to heat up again in the
middle of next week.
Meanwhile, the Sept. 9
deadline for UMG to pay Citigroup $1.9 billion to acquire EMI is
looming large, especially since the deadline for the EU to return a
decision has been extended to Sept. 27. It is expected that the EU
will make its decision before then and use the remaining time to
write up its decision. But the odds of it making its decision before
Sept. 9 are slimming down and it is beginning to look like UMG will
have to tender payment for EMI before it knows whether or not
it will gain approval for the acquisition.
Meanwhile, back in the U.S., the FTC review of the UMG/EMI deal is a
bit more fluid. Initially, there was a 30-day deadline in which the
FTC had to decide whether it wanted to take a deeper look at a
deal. In the case of the Sony Corp. of America-led consortium
acquisition of EMI Music Publishing, the FTC let the first 30-day
deadline expire (which is called an early determination).
In the case of the UMG/EMI deal, the FTC decided to take a
deeper look, and theoretically it has 30 days after it receives all
the data it requested. But the problem in determining a timeline is
that the clock doesn't stop ticking until it has been certified that
all the documentation that was being sought was delivered to the
FTC. While that has occurred, it is unclear exactly when is
occurred. Besides, at any given moment, the FTC can ask for more
time to make its decision and the amount of time can vary at its own
discretion.
Sources suggest that the FTC is
letting the EU do all the heavy lifting on the UMG/EMI deal. With
the EU now asking for a global divestment package, it certainly
saves the FTC the energy from having to move in that direction.
Moreover, informed sources say that an agreement exists between the
FTC and the EU to cooperate and communicate with each other on
merger deals. While some sources insist that those conversations
have been happening all along, one source says that is unaccurate -
and that behind-the-scenes conversations are taking place between
the FTC and EU.
In any event, time will tell what
the EU decides -- and the way things are going, it appears that all
the FTC will have to do is give its blessing the deal that is
ultimately hammered out between the EU and UMG. Billboard.biz will
be following the situation every step of the way. Stay tuned ...
