BRUSSELS (Thomson Financial) - The European Commission is set to clear the proposed merger between Sony Corp and Bertelsmann AG's BMG recorded music units without conditions, a source familiar with the matter told Thomson Financial News.
The commission, which has until Oct 10 to decide on the in-depth, 'second-phase' inquiry, will be keen to present an error-proof ruling this time around after its original green light for the 50-50 joint venture in July 2004 was overturned by the EU courts in July last year.
The source said the commission has done a much more "thorough" job this time around, spurred on by greater legal scrutiny from the Luxembourg-based courts, and will set out its its reasoning more effectively. The source also said the commission's arguments would be supported by changes in the industry, with combinations now seen in a more favourable light.
The source said that it would be surprising if the EU executive attaches conditions to the transaction.
The EU's second-highest court, the European Court of First Instance, annulled the commission's decision following an appeal lodged by the Independent Music Publishers and Labels Association (Impala), representing 3,500 independent labels.
It argued that Sony BMG Music Entertainment Inc -- which has the rights to more than a million songs by recording artists such as Usher, Dido and Christina Aguilera and Beyonce as well as classic hits by acts including Bruce Springsteen and Bob Dylan -- would block new entrants to the market and impede effective competition.
The court said the commission did not demonstrate effectively enough that the combined music giant would not create a dominant position.
More precisely, it did not provide enough legal evidence to argue that promotional discounts for Sony/BMG products would not hamper competition. The court said this argument was impaired by a "manifest error of assessment."
The key to the present inquiry is the commission's analysis of the competitive effects that major sector consolidation has on consumer prices, based on the evolution of past, present and future market conditions.
The commission has previously noted that the case deals with an environment that is exceptionally difficult.
On the one hand, the market is characterised by the strong position of a small number of major players, while on the other hand, the entire industry has been going through significant changes such as digitalisation of music and changing consumer behaviours.
Equally, the investigation is unusual in that it is being conducted after the completion of the merger, it said.
The inquiry into Sony/BMG comes after the commission at the end of May cleared French company Vivendi SA's Universal Music Group's proposed 1.63 bln eur acquisition of Bertelsmann's BMG publishing arm, subject to conditions.
The deal combined the No. 3 and No. 4 music publishing catalogues, resulting in a 22 pct market share that would scrape ahead of current market leader, the UK's EMI Group.
Unlike the recording business, which sells CDs and other products to be sold at retail, music publishers make money by licensing songs for use in movies, TV shows, CDs, video games, ringtones and other media.
The companies also collect performance fees when songs are played on the radio or in public venues such as clubs.
The commission said its "serious doubts" as to the effects on competition of the deal would be "removed" by the remedies package proposed by the parties concerning the divestiture of a number of publishing catalogues. simon.zekaria@thomson.com sz/lam
Source: iii.co.uk
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