Legal Challenge to Merger Raises Questions

By | November 6, 2004 at 12:00 AM

London – The decision by a group of European labels to legally challenge the European Commission’s approval of the Sony/BMG merger could raise questions for future deals.

Impala, the Brussels-based association of European independent labels, announced Nov. 3 that it would appeal the EC’s decision to authorize Sony BMG’s union before the court of First Instance in Luxembourg.

The legal process is expected to last 12-24 months. Legal experts believe that during that period, it will be difficult for the EC to clear any other proposed merger in the music industry without knowing the outcome of the court case.

Sources say this could spell difficulties for EMI and Warner Music Group, should those two companies decide to merge.

“It looks as if this is designed to harm the progress of future mergers between entertainment companies,” an industry source says.

Impala representatives say their intent is to object to Sony BMG in particular and consolidation in the music industry in general.

“Consolidation is not a good servant of culture,” says Impala VP Alison Wenham, who is also chairman of British indie body the Assn. of Independent Music. “We believe that we are taking steps in the interest of the entire music industry.”

MATTER OF ACCESS

One of the main objections to the merger, Wenham says, is that it creates a duopoly – consisting of Sony BMG and market leader Universal Music Group – that controls more than 50% of the music market. “It raises serious issues about access to the market.”

Impala deputy secretary general Helen Smith says, “We always had fundamental objections to the merger, and we believe the commission’s decision was flawed. We aim through this appeal to re-establish our case against the merger.”

The EC’s merger review process “was not as rigorous as one would have liked,” Wenham adds.

Impala says it decided to appeal “following a vote by (its) board and consultation at the national level, both of which showed overwhelming support for the appeal.”

Impala president Michel Lambot, who is also co-chairman of the PIAS Group, says in a statement that this is a “historic moment for the music business.” He adds: “It is the first time the industry has ever seen such a stance against concentration in the name of market access, fair play and diversity.”

Under European Union rules, an appeal on an EC decision can be filed regarding a commission decision within two months and two weeks from the date of notification of the ruling. The EC decided to authorize the merger July 19; Impala was notified Sept. 23. Since then, Sony and BMG have begun to integrate their operations.

A source close to Sony BMG says the appeal process is not bound to affect the ongoing integration.

In a statement, Sony BMG says, “We are confident that the court will reaffirm the decision to clear the merger.”

Impala says its members already have committed the necessary finances for the appeal. The fund, Impala says, is “open to interested parties who wish to show their support.”

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