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“The potential disposal of Virgin Records by Universal Music offers a wonderful opportunity to recreate a dynamic independent label in the market.”
—-Nick Fox, Richard Branson spokesperson

VIRGIN REBIRTH?

Richard Branson Reportedly Interested in Reacquiring Virgin from UMG
UMG’s acquisition of EMI—and the divestitures the European Commission might be forcing it to make—suddenly got a lot more interesting.

Among the catalogs UMG is reportedly considering putting for sale are Virgin Records, EMI Classics and the indie Mute label, though only the rights to ex-North America for all three.

Former Virgin owner Richard Branson has emerged as a serious bidder for the music label he started in London in the “70s.

Now it gets real interesting. He has already held talks with Impala Co-President Patrick Zelnik, who started Virgin Records in France in the '80s and now runs the independent label Naïve Records in Paris.

That’s the very same Zelnik who split with his colleagues on the European indie label association to support the UMG-EMI acquisition in an editorial which ran in yesterday’s London Financial Times in which he favored selling off some of UMG’s divestitures to the independent sector, rather than to private equity, hedge funds or pension funds, as was the case with Warner Music Group and EMI’s previous ownership.

“Richard Branson and Virgin have been assessing how to get back into the recorded music business for many years,” Branson’s spokesman Nick Fox told Bloomberg. “The potential disposal of Virgin Records by Universal Music offers a wonderful opportunity to recreate a dynamic independent label in the market.”

Branson’s desire to return to Virgin Records, whose artists have included Culture Club, Lenny Kravitz and Genesis, follows acquisitions in the past year by other companies in an industry that’s been hurt by online piracy and eroding CD sales. He originally sold Virgin Records in 1992 to Thorn EMI for $800 million, then started up V2 in 1996, selling 95% of that in 2006 to U.S. bank Morgan Stanley, when he exited the record business.

“I would consider there’ll be an active bidding war for Virgin Records with interest from private equity and industry insiders like Warner Music,” said Alice Enders, a media analyst based in London.

Of course, with Warner Music Group head Len Blavatnik’s fight to force regulatory denial of UMG’s bid to acquire EMI, it is unlikely that he’ll get the nod.

Virgin Records was an early part of Branson’s Virgin empire, which today includes planes, trains, holidays and mobile phones. It began when Branson founded a mail-order business in 1970, selling records by mail. He opened his first Virgin Record Shop in 1971 on Oxford Street in London and in 1973 released Mike Oldfield’s album Tubular Bells, which appeared on the soundtrack of the film The Exorcist.

After signing the Sex Pistols in 1977, Branson subsequently expanded into books, games and air travel with Virgi Atlantic Airways.

Universal Music Group lawyers are currently in Brussels where they will submit their proposal to the European Commission as soon as today, offering to sell off some business units in order to eliminate antitrust concerns about the EMI deal.

Universal’s offer would then be circulated to rivals and customers for their comments before the commission makes a decision to approve the deal.

At an Impala board meeting yesterday, members voted to keep opposing Universal Music’s purchase of EMI, citing competitive issues in digital and physical markets as well as “access to media exposure for new artists, as well as the foreclosure of independents when it comes to signing artists,” according to a statement this morning.

“Impala agrees that digital companies are giants and need proper regulation, but the problem is that excessive concentration in the music sector would help Universal mould services towards its own interests and obtain more than its fair share of exposure,” the group said.

On the other hand, the dissenting Zelnik’s editorial insisted the UMG-EMI pairing would strengthen the industry by allowing the independent sector to acquire some of those properties it would be forced to divest. Now we know why. Sources say Zelnik is leading a “maverick coalition” within Impala who go against the prevailing indie knee-jerk party line that “bigger is not better.”

Sources insist that the sale of these properties by UMG is only for Europe, where the company would top a 40% marketshare, the “Mendoza line” for an acceptable competitive situation. The deal affects only those Virgin acts who have been signed by the European labels in their individual territories, not acts inked to the U.S. label.

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