EU antitrust regulators have formally launched their investigation into Universal Music Group’s $775 million acquisition of Downtown Music, with a 22 Jul deadline to decide whether to clear the deal or open a deeper four-month probe, according to a European Commission filing on Tuesday.
The formal investigation marks the beginning of the EC's assessment of the UMG/Downtown transaction. The Commission said at the end of April that it had “accepted requests” submitted by national competition regulators in Austria and the Netherlands to “assess the proposed acquisition”.
At the time it noted that although the deal “does not reach the turnover thresholds” set out in the EU’s Merger Regulation, it believes that “the transaction threatens to significantly affect competition in certain markets of the music value chain, where both companies are active, in Austria and in the Netherlands, as well as in many other member states”.
After announcing that it would examine the deal, the Commission needed Universal to formally notify it of the transaction before it could actually begin its investigation, with that notification only occurring on Monday, 16 Jun - nearly eight weeks after the EC told the major that it would take action.
The EU’s decision to investigate the Downtown acquisition is a spanner in the works for Universal, which previously said that it hoped to complete the deal in the second half of 2025.
The EU executive, which acts as the competition enforcer in the 27-country bloc, can clear the deal with or without remedies in its preliminary review or it can open a four-month long investigation if it has serious concerns. Reuters notes that “analysts said a full-scale investigation seems the likeliest option in view of the market power of big music labels”.
That “full-scale” phase one and two European Commission merger investigation can take up to 115 working days to complete - 21 weeks - and can be granted an extension of up to four weeks. The phase one element wraps up within 25 working days of notification, hence the 22 Jul deadline.
Back in April, just hours before the EU formally announced its proposed investigation, Universal told the FT that it was “confident that we will close this acquisition in the second half of year, on its original timeline”.
Should the UK also decide to launch its own Competition And Markets Authority investigation - something that the UK’s Association Of Independent Music and other organisations have called for - that can take eight weeks for a “straightforward” Phase 1 assessment - though the CMA’s ‘average’ phase one investigation takes thirteen weeks.
According to the CMA’s website, a CMA Phase 2 merger investigation is “subject to a strict deadline (of 24 weeks, which can be extended by eight weeks where there are special reasons to do so)”. If the CMA decides that remedies are required to lessen the impacts of a particular transaction, it has a further twelve weeks to implement those remedies.
That timeline - of up to 21 weeks in the EU and as long as 44 weeks in the UK - might mean that Universal could be waiting to the end of this year or longer to find out whether the deal will be allowed to proceed.
This is a significant escalation in regulatory scrutiny for the deal and may ultimately result in the Downtown acquisition being blocked outright.
When Universal attempted to acquire EMI's recorded music business in 2011, the Commission only allowed the deal to proceed after Universal agreed to substantial divestments, with Dario Draštata, Chair of pan-European indie label grouping IMPALA, noting that, back then, “UMG was forced by the EC to make the biggest set of divestments of any merger ever approved in any sector”.
UMG’s Downtown deal has triggered fierce criticism from IMPALA, which wants the acquisition blocked. Helen Smith, IMPALA's Executive Chair, welcomed the EU’s formal investigation, stating, “We welcomed the news last month that the EC had decided to investigate and we have been keen to see the assessment get started, so this is great news. There is only one outcome to prevent harm and that is for the EC to block this outright, to secure balance, harmony and diversity in the ecosystem”.
Responsibility for the case lies with Teresa Ribera, the EC's competition chief who slapped big fines on Apple and Meta in April following her appointment in December last year.
The Downtown acquisition has already attracted high-level political attention. Aurore Lalucq, Chair of the European Parliament's Economic And Monetary Affairs Committee, submitted a formal written question to Ribera, explicitly linking the acquisition to Universal’s controversial influence over streaming business models.
Further pressure came from Professor Amelia Fletcher, a former chief economist at the UK's competition authority, who sent an open letter to Ribera on Friday.
In her letter, Fletcher - who is also an artist and label owner - warned that the acquisition “represents another step in UMG's broader strategy of undermining the vitality and viability of the independent music sector - both in the EU and globally - with a view to strengthening its own position, and potentially also that of the other two majors”.
Smith has praised Fletcher's intervention, noting that “Fletcher's expertise is outstanding and her experience as an artist and independent label, as well as an economist and regulator, makes her testimony particularly compelling. With concerns about the deal growing within European institutions, it’s important that a full detailed investigation is launched after phase one”.
IMPALA President Francesca Trainini adds, “We agree with Professor Fletcher’s views as a renowned economist and former regulator, as well as an artist and a label founder, in her letter to Executive Vice President Ribera on Friday. This follows concerns raised previously by Aurore Lalucq, also an economist, as well as the chair of one of the European Parliament's most influential committees”.
Those concerns echo issues raised in a new report released last week, ‘Combating The Emergence Of A Two-Tier Music Streaming Market’, where industry experts Dan Fowler and Katherine Basset identify “a widening gulf between large rightsholders and independent actors, driven by market consolidation, opaque platform policies, and emerging monetisation practices that increasingly favour scale over diversity”.
The threat of that two tier market was further emphasised by Sony Music CEO Rob Stringer during Sony Corp’s investor day last week, when he boasted of the second largest major’s deep connections in the indie sector via its distribution businesses The Orchard and AWAL.
Among other things, Stringer revealed that The Orchard has “minority interests in over half” of its top 20 clients, and highlighted the “inside track” Sony has on acquisitions, powered by the data flowing through Sony, including via its distribution divisions.
Should Universal be allowed to proceed unchecked with its acquisition of Downtown, that raises the prospect of a duopoly of the two biggest majors that leaves everyone else behind.
It also raises the question of whether Sony’s position in the market is itself too concentrated - and whether that might also attract onward regulatory scrutiny. Sony, unlike Universal, is notoriously quiet about the deals it strikes.
Despite the mounting opposition, Universal said it looks forward to continuing to cooperate with the European Commission in the weeks ahead, giving Reuters the same statement it made to the FT in April, saying that it is “confident that we will close this acquisition in the second half of the year, on its original timeline”.
The Downtown acquisition would give Universal control over the FUGA distribution network, DIY distribution platform CD Baby, Songtrust rights administration business and Curve royalties platform - businesses that are collectively relied upon by a significant portion of the independent music sector.
Gee Davy, CEO of AIM, says that the EC should “stop this acquisition outright and put an end to UMG’s ‘juggernaut’ strategy”, adding that “music fans, artists, and future entrepreneurs” all need intervention to “ensure an open, inclusive and competitive music market in Europe” and “a broad range of participants and a diversity of music”.
