European regulators are set to launch a full-scale antitrust investigation into Universal Music’s proposed $775m deal to gobble up Downtown Music, says Reuters.
With a Tuesday deadline to present “remedies to address regulatory worries” over the merger, Universal’s label services division Virgin Music Group, which is leading on the acquisition on the major’s side, “did not provide” information to halt the European Commission’s regulatory investigation, says the newswire quoting three insiders with “direct knowledge of the matter”.
In a quote issued to trade media, a Universal spokesperson refused to comment on the Reuters report, instead launching a gloves-off attack on the “wilful misrepresentation of market data by self-interested parties who represent a tiny fraction of the thousands of independent labels that make up the broader independent community globally”.
That ‘passions are running high’ around the deal is an understatement, and the unprecedented level of pushback from Universal surrogates shows how concerned the mega-major must be that the EU is going to put the brakes on its expansion plans. The EU regulator began its initial formal analysis of the deal last month, and the major - via its proxies - has been working hard to try to sway public opinion and stop it launching a full ‘phase two’ investigation.
Some of those surrogates - including [PIAS] co-founder Kenny Gates, who acknowledged that he would likely be seen as a Universal “stooge” - have focused on the role that pan-European indie label trade body IMPALA has played in pushing back against Universal’s deal.
Gates, of course, sold his business to Universal and at the time penned a memo where he said that he and co-founder Michel Lambot had “sold our shares but not our souls”, adding bombastically that any “gossip, criticism and cynicism” about his deal with the major could be met with the retort “fuck the haters”.
Earlier this month in a dramatically written thousand word screed published as an op-ed on website Music Business Worldwide, where it sits alongside advertising from Downtown Music, Gates launched a blistering - if inaccurate and somewhat incoherent - attack on “misleading propaganda” from IMPALA.
Gates’ attack is hung around the claim that Universal “had the guts” to stand up to TikTok during a high profile licensing dispute last year, and had “everything to lose” when it took on “one of the world’s biggest and most powerful entertainment tech companies”, while IMPALA “simply sat on the sidelines” and did “next to nothing” while other organisations “publicly applauded UMG’s stance”.
All well and good, until you realise that the entire premise of Gates’ frothing rhetoric is rooted in inaccuracy, with Music Business Worldwide having to weigh-in to publicly fact-check and correct his inaccurate criticism, noting that IMPALA had, in fact, publicly supported Universal’s stance against TikTok.
Music Business Worldwide is seen by many across the industry to be a close ally to Universal, with founder Tim Ingham writing his own highly politicised op-ed the day after the EU said it would intervene.
Ingham criticised the EU’s regulatory framework, in part by looking back to a past mega acquisition by Universal in 2012, when it gobbled up what was left of EMI after Guy Hands’ disastrous foray into the music business. He claimed that, back then, “egged on by outraged independent music lobbyists”, the EU had “dramatically failed to predict the modern world” and “forced” Universal to “divest a vast chunk of catalogue”, something that Ingham says was “misguided regulatory overreach, led by doom-mongering forecasts that we now know were wildly inaccurate”.
Frothing rhetoric is the name of the game though. A day after Gates’ op-ed ran, Virgin Music Group co-CEOs JT Myers and Nat Pastor trotted out their own memo - also covered extensively in MBW - which, they said, aimed to “clear up some of the falsehoods that opponents of the deal are perpetuating” and “bring truth to bear against some of the fictions and falsehoods being spread by the familiar cast of characters” who oppose the deal.
When the Downtown deal was first announced, the accompanying statement from Universal very much stressed it was Virgin Music Group acquiring the Downtown group and its FUGA, CD Baby, Songtrust and Curve businesses. This was seen as a cynical PR move by many in the indie community, which accused Universal of exploiting Virgin’s indie origins in a bid to distract from the major’s latest attempt to exert control over the entire digital music ecosystem.
Defending the division that is itself the result of multiple previous acquisitions (including EMI’s Caroline, Ingrooves, and Myers and Pastor’s own label services business mtheory), the VMG bosses said the “insinuation that Virgin is anything but a positive force in the independent marketplace” is unfair, and “any assertions to the contrary” are “juvenile” and “offensive”, “spread by those who are willing to say anything to hurt the chances of this deal happening”.
That, of course, is presumably completely different from people who have sold their businesses to Universal and are willing to say anything to ensure the Downtown deal proceeds.
Myers and Pastor at once promise that “Virgin will not exploit Downtown’s customer base for any reason” while noting that the deal with Downtown will “strengthen the foundation we’ve built thus far” as a “unified company”.
“While the merger has rightly been under regulatory review around the world for the last six months”, add the pair, “our priority has naturally been to present to the regulators our position on the transaction”.
If Reuters’ report proves correct, then it would appear that “position” that Myers and Pastor have attempted to use to sway regulators - coupled with the hooting and hollering of Gates, Ingham and others - has failed to convince the EU of the merits of the deal.
Universal now faces a long and drawn out regulatory inquiry, which - with an initial 90 working day period, and possible additional 20 days extension if necessary - means it could be Christmas before the EU makes up its mind. That may mean approving the deal, or partially approving it with remedies. Or, of course, it might block it entirely, putting a halt to Universal’s ambitions to eat the world.
