European Union regulators started an in-depth investigation into the merger between the music units of Sony Corp. and Bertelsmann AG, saying the deal risks raising record prices.
The EU will study whether the creation of Sony BMG Music Entertainment in 2004 is allowing the biggest record companies to collude to set prices for CDs, the European Commission said in a statement today. The EU's Brussels-based antitrust regulator will rule on the transaction by July 2. The commission, which first approved the venture in July 2004, must re-evaluate the combination after a successful appeal by Impala, which represents 3,500 independent labels. The EU can demand changes or even block the deal, which would force Sony Corp. and Bertelsmann AG to unwind the world's second-largest record company that represents artists such as Jennifer Lopez, Bruce Springsteen and Avril Lavigne.
In its four-month probe, the commission will study market developments since the 2004 merger, especially the growth of Internet sales. The regulator also said it will probe „whether or not the merger strengthens or creates a dominant position” in „relatively concentrated” record markets. „We remain confident that at the end of the review that the commission will reach the same conclusion as they did in 2004 and approve the deal,” Bertelsmann spokesman Andreas Grafemeyer said in an interview.
In a questionnaire sent to record companies and trade groups, the commission asked whether the deal is allowing the biggest record companies to abuse their market power by fixing CD prices. The commission's questions echo concerns the regulator expressed and dismissed during its 2004 probe of the deal. The commission initially found that there was a risk that the majors would tacitly collude to set prices on CDs because they were aware of each other's prices. Under EU law, the regulator can block a merger if it can show that companies would abuse their „collective dominance” of the market.
The commission originally approved the deal with no conditions after failing to find evidence of price collusion. The European Court of First Instance, the EU's second-highest court, in July ruled that regulators had carried out „an extremely cursory examination” of the effects of the merger and that they didn't support their conclusion that four major record companies wouldn't collectively dominate the market.
Impala, the Independent Music Publishers and Labels Association, has argued that New York-based Sony BMG stifles the emergence of new artists and reduces competition in the industry. The re-examination of the deal comes as the world's biggest music companies, Vivendi SA's Universal Music Group, Sony BMG, EMI Group Plc and Warner Music Group Corp., struggle to consolidate amid falling prices and sales. (Bloomberg)