The indie label community has welcomed confirmation from the European Commission that it has sent a ‘statement of objections’ to Universal Music over the major’s proposed acquisition of Downtown Music.
That statement, confirmed yesterday, is a formal escalation of the EC competition regulator’s ongoing investigation into Universal’s bid to buy Downtown - including subsidiaries FUGA, CD Baby, Songtrust and Curve - a deal that has been strongly criticised by many indie labels and their representative organisations.
The EC said yesterday that, after conducting an “in-depth investigation” into Universal’s proposed Downtown acquisition, it has concerns that the deal will “hamper rival labels’ ability and incentive to compete” with the major. Universal now has ten days to respond to those concerns and may propose remedies that it thinks can overcome issues raised by the regulator.
Pan-European indie label trade group IMPALA says it “welcomes the European Commission’s statement confirming to UMG that the proposed acquisition of Downtown raises concerns about restricting competition in the wholesale distribution of recorded music market”.
It then reiterates “we believe this acquisition should be prohibited outright”. The EC’s concerns seem to centre on the Downtown data Universal will have access to and, IMPALA adds, these arise from “horizontal overlaps” and “cannot be resolved by remedies as the EC’s own guidelines make clear”.
Universal will have access to a plethora of data from across the various Downtown businesses, including consumption, marketing and financial data. That data will be valuable to the major in an assortment of ways, providing insight that can be used in marketing campaigns, artist deals and catalogue acquisitions.
And - as CMU has previously noted - with the emergence of new powerful AI tools within the music industry, that data becomes even more valuable, as those tools all require extensive data for training.
In its announcement about the statement of objections, the EC hones in specifically on data controlled by Curve, which provides rights and royalty management services to independent labels.
As labels use Curve to manage royalty payments to their artists, its database contains lots of confidential information about each label’s contracts with those artists and their collaborators - artists that Universal’s labels may also be interested in signing.
If Curve becomes part of Universal, the EC says, the major “may have the ability and incentive to gain access to commercially sensitive data that is stored and processed” by the royalties platform, and that “information advantage for UMG would hamper rival labels’ ability and incentive to compete with UMG”.
Universal will likely argue that policies can be put in place to ensure data contained on Curve’s platform is never accessible by other divisions of the major. The indies have already argued that such commitments are impossible to enforce.
Another option could be that Universal simply agrees to divest itself of Curve as part of the transaction. Though the indies are keen to stress that the data issues go beyond Curve.
IMPALA pointed out yesterday that “our members have consistently flagged that data issues - which extend beyond Curve to include FUGA and other entities in the Downtown family - have to be viewed in the wider context of multiple concerns around the digital market, the whole ecosystem, cultural diversity and the removal of a significant competitor”.
That wider context is key, IMPALA insists. “It is material to a safe outcome to the case for the Commission to address all of the concerns raised by market participants”, it explains, adding, “We do not expect the EC to be abandoning issues of cultural diversity or the competitivity of small businesses and artists in such a significant case”.
Indeed, it explains, “assessing impact on cultural diversity is part of the European Commission’s obligations under the European treaty and also the UNESCO convention”. And that impact was “an important part” of previous EC competition cases, including Universal’s 2012 acquisition of the EMI record company.
The current deadline for the EC to reach a decision on the Downtown deal is 6 Feb. It could green light the acquisition, outright block it, or approve the transaction subject to certain conditions, such as the sale of Curve.