Green Light for Sony-BMG?

The proposed merger of the music divisions of Sony Corporation and Bertelsmann AG may win approval from European Union regulators, according to reports from Brussels on June 18.

The news is something of a turnaround, considering the generally negative spin given the proposal by most previous reports. Over the past two weeks, European Commission (EC) investigators determined that antitrust regulators had misinterpreted data on music distribution and sales, according to one news source. Mario Monti, head of the EC antitrust panel, was expected to announce a go-ahead for the Sony Music/Bertelsmann Music Group (BMG) merger on Saturday June 19, with full EC approval expected within three weeks.

In private discussions with EU commissioners, Sony and BMG overcame charges of "tacit collusion" in CD pricing with an avalanche of data. Industry-wide price fixing was the regulators' primary objection to the merger; with that concern out of the way, the merger may roll on to full approval. The deal will be presented to regulators of individual EU member states. It may also win easy passage by the US Federal Trade Commission, according to Dow Jones Newswires.

Four years ago, the EC turned down a similar proposal concerning Warner Music Group (WMG) and EMI Group PLC. Conditions for the music industry have worsened since then, to such an extent that regulators apparently now feel that consolidation between two of the industry's "Big Five" would not be detrimental to consumers. Independent music companies feel quite differently, and almost immediately issued their objections to the merger, including threatening to sue if it won approval. Impala, a trade group of more than 2000 independent music companies, issued a statement that it would pursue "all options . . . including legal action." The merger would force Impala members "to request state subsidies and market regulation such as fixed prices in order to ensure pluralism and diversity," conditions that the EC had sought to avoid in blocking prior mergers.

The Sony/BMG combined entity would be the world's second-largest music conglomerate, just slightly behind Universal Music Group (UMG). Both giants would claim approximately 25% of the global market share in recorded music. Estimates published in the financial press put Sony/BMG's potential annual sales as high as $5.7 billion.