Reduced Version of Universal Music’s $1.9 Billion Takeover Approved by EU

Universal Music has agreed to terms outlined by European regulators on Friday. As a result, EU has approved a reduced version of Universal Music’s $1.9 billion takeover of EMI Music, allowing Universal to expand its dominance as the world’s largest music company but significantly paring down its ambitions.

To win the approval of the European Commission, Universal agreed to divest itself of about a third of the assets of EMI, including most of Parlophone, its flagship label in Europe, along with a number of formerly independent labels and nine national subsidiaries of EMI across Europe.

Universal will also sell a handful of its own assets, and it agreed to a set of market behavior controls that will govern how it handles contracts with digital music services.

The divestments include global rights to release the music by the artists on those labels, which means that EMI will no longer release records by some of its biggest acts, including Coldplay, Pink Floyd, Kylie Minogue and David Guetta. One consolation for Universal is that it will not have to sell recording rights for the Beatles or Robbie Williams, one of EMI’s biggest acts in Britain.

The commission, the executive arm of the European Union, said in a statement that the asset sales allayed its concerns about the combined group’s market power, and that it paid particular attention to the merger’s effect on the digital music market.

The Federal Trade Commission plans follow suite and to vote on the controversial merger between Universal Music and EMI on Friday. Baring any last minute surprises, the deal is expected to be approved with no strings attached, according to a source familiar with the matter.

The deal has sparked alarm among antitrust watchdogs and Internet experts for its anticipated effect on the market for digital music. If approved, just three record labels would control 90 percent of the music market, with Universal controlling more than 40 percent. With a market share that large, music industry experts say Universal could dictate the terms of any new digital music provider, making it an effective gatekeeper for new music platforms.

“This will hamper innovation,” said Gigi Sohn, president and CEO of Public Knowledge, a nonprofit group advocating for Internet openness. “We’re not so concerned about the digital music services that already exist. They already have deals; but what about all the companies that don’t exist yet?”
Many musicians have also voiced opposition to the deal, arguing that existing record label contracts are stacked against artists — and will likely remain so absent significant changes in the digital marketplace. On average, musicians only receive $23.40 out of every $1,000 in music sales under the current system.

The American Antitrust Institute, the Consumer Federation of America and the Future of Music Coalition — a group representing independent and unsigned musicians — are all opposed to the deal. Musicians unions are divided on the deal, with some in favor and others opposed.

Universal has defended its $2 billion acquisition of EMI, with a spokesman telling The Huffington Post that opposition to the deal is “based on a lot of hypothetical assumptions and misconceptions that are not grounded in the realities of the music business today.”

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