STATEMENT OF OBJECTIONS REVEALED

The European Commission’s statement of objections to the proposed Sony-BMG recorded-music merger says the reduction of consumer choice while increasing the likelihood of price-fixing among the majors are the regulators’ main concerns, but just two among many, according to the New York Post, which obtained a copy of the document.

The statement observes that the EC has “come to the preliminary view that the notified concentration is incompatible with the common market since it would strengthen a collective dominant position in the market for recorded music.” While we’re not really sure what that means, it doesn’t sound good.

The statement reportedly hints that one concession Sony and BMG could be asked to make is to sell their music publishing businesses. Though the companies’ publishing units are not part of the proposed merger, the EC is worried that the deal would effectively reduce competition between them.

The European regulators are also concerned that the merger would result in further artist-roster cuts, reducing consumer choice in a deal that would otherwise be of little benefit to consumers, the Post says. Along with what has been termed “tacit collusion” among the majors with regard to how pricing appears to be coordinated, the Commission says the industry as a whole should have been more willing to reduce prices in the face of piracy rather than keeping them largely the same. The statement also finds fault with the industry’s “failure to adapt to the technological challenges of the Internet.”

Perhaps even more troubling is the Commission’s concern that the companies’ reasoning in attempting the merger is flawed: While Sony and BMG hope that merging will allow them to reduce costs and compete more effectively, the EC finds that "the main effect will be a rationalization of overhead costs but this is unlikely to result in an effect on retail price," according to the Post. "The Commission is also not convinced that the merger will provide significant benefits compared to individual rationalizations at the level of both Sony and BMG," the statement continues.

The two companies are preparing responses to the statement of objections, which they will deliver in an upcoming hearing ahead of the Commission’s final decision, expected in mid-July. While both Sony and BMG are said to remain confident that the deal will be approved, some insiders now say they give the merger only a 50-50 chance of going through.

The Post says the EC has ultimately approved 70% of mergers that have received a formal statement of objections.