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EC TO HEAR SONY, BMG ON MERGER
Two Days of Hearings Begin Today
In what could prove to be a make-or-break week for the proposed Sony-BMG merger, the European Commission, led by Mario Monti, is holding two days of hearings to allow both sides to rebut its official statement of objections to the tie-up, according to reports.

Beginning today, the EC will hear from both Sony and BMG, whose representatives are expected to present arguments that the Commission’s concerns about the merger are based on misinterpretation of pricing data. The EC is said to believe that the deal would result in higher prices and less selection for consumers in a business where there is already too little competition.

The statement of objections charges the major music companies with “tacit collusion,” based on the EC’s findings that "net average real prices of all majors moved in parallel within a range which can be considered as a tunnel.” The commission also found evidence of “remarkable stickiness of prices over the years in the facing of a changing market environment.”

"We need to demonstrate that the assessment on prices is unfounded," one executive told the Financial Times. "Sony and BMG could not fix prices and especially not raise them even if they tried to."

The subject of concessions might also come up at the hearings, recent reports having indicated that Sony and BMG could offer to license some music to independent labels. But the FT also says that the two would-be merger partners could also issue a “warning” to the Commission by saying that if their deal is not approved, they may be forced to cut jobs and artist rosters further than they would if the merger became a reality.

Meanwhile, the New York Post reports that BMG parent Bertelsmann would likely sell its music publishing business in order to gain EC approval of the merger, even though the two partners’ publishing interests are not part of the deal. The EC has said it is concerned that Sony and BMG would operate their publishing units in tandem if the recorded-music merger were approved. “At this stage, it appears likely that coordination of Sony’s and BMG’s behavior on the markets for music publishing would appreciably restrict competition,” the EC's statement of objections says.

BMG Music Publishing is worth between $800 million and $1 billion and would likely be snapped up by private equity firms, the Post says. Sony's Sony/ATV publishing unit, co-owned with Michael Jackson, is worth an estimated $750 million, but can’t be sold without Jackson’s approval.

A second day of hearings on Tuesday will give companies opposing the Sony-BMG deal the chance to argue their cases. Among these will be European independent-label organization Impala, which has blasted the merger repeatedly, even threatening lawsuits if the EC fails to block it.

According to the FT, this week’s oral hearings aren’t as important to the EC as the documents and data it has collected from both sides. The hearings do precede the Commission’s “devil’s advocate panel,” however, where the EC will internally debate the validity of its various objections to the deal. Arguments presented in the hearings could have an affect on the Commission’s deliberations, as could any discussion of concessions.

Following the hearings and the “devil’s advocate panel,” Sony and BMG have until the beginning of next week to propose initial concessions to satisfy the Commission’s remaining objections. The Commission must decide whether to clear the deal, block it, or demand additional concessions by July 22.
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