An influential member of the European Parliament, who chairs a committee that oversees competition issues within the European Union, has formally asked the European Commission to comment on Universal Music’s proposed acquisition of Downtown Music, specifically referencing the major’s influence over streaming business models and the “mass demonetisation of certain music”.
Aurore Lalucq’s formal questions to the Commission, published on Friday, comes after the Dutch competition regulator asked European Union competition officials to review the Downtown deal, which would give the major ownership of the FUGA distribution network, DIY distribution platform CD Baby, Songtrust rights administration business and Curve royalties platform.
Those collective businesses, which were founded or acquired by Downtown Music Holdings, are relied upon by a significant portion of the independent music sector.
Lalucq, who chairs the European Parliament’s Committee On Economic And Monetary Affairs, begins her questions to the Commission by stating that “the music market is a vital sector for the EU”. She then adds, “more than 80% of all new music is released by micro, small and medium-sized businesses who need an open and thriving market to innovate and make European artists strong and visible”.
This is threatened, she argues, by “juggernaut-style consolidation and mass demonetisation of certain music on streaming services”. Under pressure from the majors, and especially Universal, streaming services including Deezer, Spotify and Amazon have all made changes to how they pay out royalties.
Many independent music companies have been highly critical of Universal’s Downtown deal, arguing that it will not only result in the major having greater direct control over music distribution, but also give it detailed insights into many of its independent rivals’ data. This, they say, will grant Universal even more power in the streaming market, where the major has already forced changes to payment systems in a way that favours its catalogues over those of smaller independent labels and self-releasing artists.
Specifically pointing to that deal, Lalucq asks the Commission whether it agrees that there are “concerns” when a “market leader” like Universal “acquires some of the world’s biggest distribution companies and other essential services” via the “roll-up merger” of Downtown and its subsidiaries, giving it “unprecedented control over routes to market and access to data, as well as control over how digital services pay out”. It’s those kinds of concerns that could prompt the EU to intervene in this big deal.
Under EU merger control rules, deals with an “EU dimension” to them - in other words, where the merging companies have operations in the EU - must be formally notified directly to the European Commission, rather than national regulators, when they meet certain criteria. When both companies - in this case Universal and Downtown - exceed certain turnover thresholds, and also generate a certain level of revenue in the EU, the deal must automatically be examined by the Commission.
Specifically, that ‘primary threshold’ for merger notification kicks in when the total worldwide turnover of the proposed combined entity exceeds €5 billion and each company generates over €250 million within the EU. Universal’s turnover in 2024 was €11.83 billion, but - despite FUGA also being an EU-based company - it seems that Downtown is generating less than €250 million within the EU.
That’s perhaps not a surprise, given the UK is a key centre for Downtown’s operations, plus many labels and smaller distributors using FUGA’s infrastructure will actually be licensing their catalogues via Merlin deals.
Which means, although FUGA delivers a significant quantity of music to digital platforms - the company itself claims in marketing materials that it “analyses more than 30 billion streams a month” - and that music may generate a significant amount of revenue, it’s likely that a lot of that revenue does not actually flow via FUGA itself, and so does not impact on its turnover.
This is because where FUGA clients are using the Merlin deal, FUGA delivers the content, but the money flows back via Merlin. With Merlin reporting revenue of £1.19 billion 2023 (the last period for which data is available), it’s likely that FUGA is an intermediary for significant revenue where the money never touches FUGA’s accounts.
The result is that a significant portion of the revenues that the company is facilitating, and the data that it has sight of, is unlikely to be represented in its turnover. If the revenue generated by the music FUGA touches was actually reflected in its revenues, it’s possible that the deal would hit the threshold for automatic EU regulatory notification.
Within the EU mergers that don’t reach the EU-level threshold still typically require mandatory notification to individual national competition authorities where they meet country-specific criteria - which likely explains the previously reported Dutch regulatory oversight of the deal, given both Universal and FUGA, under Downtown’s ownership, are Dutch companies.
Member states’ own notification thresholds vary, meaning a merger might be more likely to meet the criteria in one country than another, explaining why the Austrian competition authority was also looking into the deal in its own right and why, more broadly, Universal had been seeking approvals from multiple national regulators in the EU rather than dealing directly with the Commission.
Under the EU’s article 22 referral mechanism, EU member states can also refer cases to the Commission if they threaten competition across member states, given the Commission’s oversight of mergers that have cross-border competitive impacts within the EU - precisely what independent music companies argue is happening with Universal’s acquisition of Downtown.
In her questions to the Commission, Lalucq sets out four ways that the EU could respond, in relation to the Downtown deal and more generally to concerns about consolidation in the music industry, and regarding Universal forcing the streaming services to change their business models to favour its catalogue.
She wants the Commission to say whether it considers each of the four possible responses both “essential” and “urgent”.
Those four responses include “a detailed Commission investigation” into the Downtown acquisition and an “investigation of streaming reforms for undue influence by the market leader”.
The other two possible responses would review how the EU deals with mergers and competition rules. Noting that this deal has fallen beneath the EU’s own merger control thresholds, Lalucq asks if the Commission should have “new powers to call in key mergers that are below” those thresholds.
She also proposes an “assessment of whether competition rules are fit for purpose in priority ecosystems such as the cultural ecosystem”.
The Commission will need to respond to Lalucq’s questions within six weeks.
Lalucq’s formal intervention significantly raises the political stakes for the Commission - and the pressure on Universal. As chair of the influential Economic And Monetary Affairs Committee, her explicit linking of Universal’s acquisition strategy to both market concentration and the major’s already controversial interventions in the streaming market carries substantial weight, and such high-profile political attention will inevitably intensify regulatory scrutiny.
And, of course, there is meaningful precedent in all of this. When Universal attempted to acquire EMI’s recorded music business in 2011, the Commission only allowed that deal to proceed after it agreed to make substantial divestments, concluding that the deal “raised serious doubts as to the compatibility of the proposed concentration with the internal market”.
At that point the market for recorded music was obviously very different to today. As the EC noted in its report at the time, the European Economic Area’s total market for recorded music was just €3613 million in 2010, with €2913 million of that coming from physical music products and just €700 million from digital music.
With Universal’s market position now even stronger than when it was forced into divesting parts of EMI by the EU in 2012, and the additional concerns about data access and distribution infrastructure, the Commission could potentially block the Downtown deal outright, or impose remedies that would fundamentally alter the deal’s value - though it is hard to see what alterations could be made that would allay the concerns of the independent music community.
With only two weeks to go until Universal’s Q1 2025 quarterly earnings call, which takes place on 29 Apr, and scrutiny of the company’s acquisition strategy mounting, Universal CEO Lucian Grainge may face a rough ride from investors and analysts.
With Universal’s share price struggling over the past year, having dropped from a peak of €29.49, it looks as though the market may already have priced in a potential unspooling of Grainge’s juggernaut ambitions. Where that leaves the next tranche of his €100 million megabonus - which needs the share price to hit €30 per share - and what it means for his trajectory as CEO with just three years left before his current contract expires - is anyone’s guess.
