If only this had all happened 24 hours earlier we could have staged a food fight at the BPI AGM, with the indies on one side and the majors on the other. I was already covered in strawberry jam by the time I got to the BPI HQ on Wednesday (long story involving a run in with a jam crepe), so I wouldn't have minded refereeing.
Anyway, the often tedious world of major record company mergers turned into an interesting war of words and moved into unprecedented territory yesterday as the EU Court Of First Instant ruled that the EU Commission should never have allowed Sony Corp and Bertelsmann to merge their recorded music operations two years ago - a ruling which essentially means that the very existence of SonyBMG violates European competition rules, and possibly interferes with the entire space time continuum.
As you'll all surely remember, it was pan-European trade body IMPALA that took the European Commission to court over its decision to approve the SonyBMG merger. They said the Commission rushed through approval of the merger despite widespread opposition and without sufficient analysis of the implications of allowing over 70% of the worldwide music market to be controlled by just four companies. On those grounds the trade body said the Commission's decision to approve the merger should be annulled.
And the EU Court Of First Instance agrees. In a statement issued yesterday, they said that prior to OKing the SonyBMG deal the Commission had failed to sufficiently demonstrate that the merger would not result in the "big four" having a "collective dominant position" in the world's music market. It also said regulators were guilty of conducting an "extremely cursory examination" of the risks posed to competition by the deal.
What they actually said was: "The Commission did not demonstrate to the requisite legal standard either the non-existence of a collective dominant position before the concentration or the absence of a risk that such a position would be created as a result of the concentration. So fuck you SonyBMG". Or words to that effect.
Of course the EU Court isn't necessarily saying that the merger itself should not have happened at all, rather that the Commission failed to investigate the implications of the deal properly, and failed to present enough evidence to contradict those "collective dominant position" allegations. Such evidence is arguably out there, but the Commission failed (or didn't try) to find it.
Nevertheless, the result is a considerable coup for IMPALA and the independent sector it represents, and they were in a suitably jubilant mood following the court announcement yesterday morning. In a statement, the trade body told reporters: "This is a victory for music and cultural diversity. It is the start of market recovery."
The group's recently appointed President, Patrick Zelnik, told CMU: "This is a watershed in European affairs. A landmark judgement for music. There is no doubt that it will block any further mergers and will transform how music and other creative sectors are treated. We have proved that, by acting collectively, we can challenge the unchallengeable".
Michel Lambot, IMPALA President during much of the court case, added: "This judgement is a turning point for the EC. The Court has recognised that the rights of Europe's creators to create should not be thwarted by unchecked concentration. We see it as a call for the EC to turn its rhetoric on Europe's creative sectors into action".
Recently appointed IMPALA chairman, and the boss of London based Beggars Group, Martin Mills, said: "We are delighted with the judgement. There was an objective need in the general interest to ensure effective judicial review of a decision comforting anti-competitive structures. This is an incredible result, especially considering the inequality of arms between IMPALA and the Commission and Sony Corporation and Bertelsmann Group".
But what does all this mean for SonyBMG, the company created by the merger and, arguably, two years on, one unmergable entity (in so much as anything can be unmergable)?
They could urge the Commission to appeal the decision to the EU's upper court (the Court Of Second Instance, presumably) though IMPALA reckon that isn't likely for some technical reason I can't be bothered explaining. Or they could just hope that when the Commission review the merger proposal anew (which they will now have to do, appeal pending) that they will reach the same decision (ie that the merger can go ahead) while satisfying the court's concerns.
Otherwise, what? Well, IMPALA say this: "The merger will go back to the Commission but the independents believe that the problems highlighted by the Court right across the music market are too fundamental to be repaired. Without competition clearance SonyBMG would have to dismantle."
The Commission said this: "We will study the ruling and, if the merger is annulled, then we will relaunch the merger review process".
SonyBMG say this: "Today's judgment does not affect the validity of the Sony BMG joint venture, which has been up and running since August 2004. We are studying the judgment carefully and shall discuss the appropriate next steps with the European Commission."
Whether the EU courts would really force Sony Corp and Bertelsmann to split their combined record company back into two separate entities isn't really known - as I said, this is kind of unprecedented territory - but it is hard to believe they would; the precedent that would set would make a lot of very powerful mergers and acquisition fans very nervous. But it might slow down the rumoured talks between the two partner companies regarding Bertelsmann selling some of its 50% stake to Sony Corp. (Perhaps Bertelsmann should sell out to Sony Corp right away, then Sony, as sole owners of the company, could send Howard Stringer in saying "merger, what merger, no, we've always owned RCA, honest guvnor").
The decision might, however, spell an end to plans by London based EMI and New York based Warner to stage a similar merger (well, not that similar really, they've no interest in joint ventures, but the result of the acquisition of one by the other would be the same in terms of the size of the merged entity and the consolidation of the music industry it would cause). Bloomberg quote one analyst as saying the Court's ruling "appears to pour a bucket of ice water over the hopes of an EMI-Warner merger". But both EMI and Warner were unwilling to draw such a rash conclusion - both saying they would have to look at the EU Court's ruling more closely to see if it would affect their chances of getting a merger past the European Commission. EMI boss Eric Nicoli, speaking at a shareholders meeting yesterday, remained optimistic, saying: "We would not have made a proposal if we thought we could not receive regulatory approval. There's no reason at this stage to change that view".
So, all in all, little is certain about anything regarding the framework of the recording industry this morning, except that writing about it has created possibly the longest ever story in a CMU Daily.
PS: You'll see Beggars chief and IMPALA chairman Martin Mills welcoming the EU Court decision up there in that story - as he should do given his role in the independent sector. It will be interesting to see how he responds should an EMI Warner merger deal ever get to the European Commission for approval. As previously reported, Beggars has just entered into a partnership with Edgar Bronfman Jnr's Warner Music to launch Beggars Japan. But as also previously reported, IMPALA has vowed to fight aggressively any attempt by EMI and Warner to merge. Which means poor Martin could find himself leading a forceful fight in the European courts against his new business partner! Still, all this SonyBMG shenanigans might mean that eventuality may not occur any time soon.
PPS: Have you noticed we always write SonyBMG, whereas everyone else (except the Times, on occasion), writes 'Sony BMG'? I'm sure there was a brief period shortly after the merger when SonyBMG themselves wrote it thus - because that's why it was adopted into the CMU dictionary as such. But I know for certain SonyBMG write it Sony BMG these days. Fools. It would be much harder to demerge SonyBMG - but with that space between the two words, well, anything's possible.
PPPS: All sorts of share prices fell in the music industry yesterday in response to the EU Courts decision. We possibly should have included that a bit higher up, rather than down here in the PS bit - but I don't have any shares in the music business, so I find it hard to care. The share price in CMU remained unchanged. Ie, non-existent.