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UK competition regulator fully clears Sony’s acquisition of AWAL

By Chris Cooke | Published on Thursday 17 March 2022

The UK’s Competition & Markets Authority yesterday fully cleared Sony Music’s acquisition of the AWAL label services business, confirming a provisional ruling that was made last month.

Sony announced that it was buying the recordings division of Kobalt – consisting of the AWAL label services set-up and a neighbouring rights agency – in February last year in a deal worth around $430 million. It was the latest in a long series of acquisitions by the major that boosted the distribution and label services side of its operations.

Most of those previous acquisitions have ultimately been folded into Sony’s The Orchard company, which – prior to the deal – was a significant competitor to AWAL.

Although, that said, The Orchard mainly provides services to independent labels whereas AWAL primarily provides services to independent artists, so while there is a crossover between the two companies, they do also complement each other to an extent. Which meant there was a certain logic as to why Sony would want to further extend the services side of its business by buying the Kobalt recordings company.

Nevertheless, the combination of two high profile players in the artist and label services strand of the music industry did raise some competition law concerns. It also expanded the size of the catalogue the wider Sony Music group has influence over and increased the amount of valuable data that passes through the major’s systems. All of which made the deal controversial in some quarters.

Hence competition regulator the CMA taking an interest in the deal. And phase one of its investigation raised enough concerns to prompt a second more in-depth phase.

The CMA’s officials ultimately put the spotlight on two key issues: the “extent to which The Orchard and AWAL may be expected to compete to provide artist and label services” and “how closely Sony and AWAL may be expected to compete to sign successful artists, and those with the potential to become successful, where higher levels of support and investment are provided”.

However, in its provisional ruling last month the CMA concluded that neither of those areas provided sufficient concerns to stop Sony’s AWAL purchase from going ahead.

It stated: “While not currently competing closely due to their different areas of focus, The Orchard may have become a stronger rival to AWAL in the supply of artist services in future. However, there are many other providers who will continue to compete effectively with both firms – including independent artist and label services companies, the artist and label services branches of the other major labels (like Warner’s ADA and Universal Music Group’s Virgin) and independent labels”.

And “in terms of its rivalry with Sony, AWAL is still a relatively small player when it comes to signing artists who require higher levels of support and investment. Despite trying to expand its offering, AWAL was expected to continue to compete with Sony only on a limited basis. In the course of its investigation, the CMA also found that many other firms have begun providing similar services which can be expected to make up for the limited loss of competition from AWAL”.

Interested parties had one last chance to respond to that provisional decision, but it seemed unlikely the CMA would change its mind this late into the proceedings. And it did not.

Confirming that the regulator has now officially cleared Sony’s AWAL deal, the Chair of its independent inquiry group, Margot Daly, said yesterday: “We launched this inquiry as we wanted to be sure that this deal wouldn’t lead to worse outcomes for artists and fans. The music industry is vital to the UK economy and effective competition ensures that it works for everybody. Having carefully assessed the merger we found that it is not likely to affect competition in a way that will reduce the choice or quality of recorded music available or increase prices”.

Needless to say, Sony welcomed that ruling yesterday, with a spokesperson declaring: “We welcome the decision by the CMA to clear Sony Music’s acquisition of AWAL and Neighbouring Rights, allowing us to focus on offering the best service for their artists, in an intensely competitive market with multiple competitors and many offerings. This is the start of an exciting new venture for Sony Music Entertainment, AWAL and Neighbouring Rights, and ensures we can continue to deliver real benefits for artists globally as the music industry continues to evolve”.