Warner Music has struck a truce with independent record labels, which could clear the way for the US-listed group to make a $6bn (£3bn) bid for EMI and reset the balance of power in the music industry’s negotiations with Apple and other digital distributors.
Warner has secured the support of the music companies’ fiercest critic to revive merger talks with EMI, the British company behind Norah Jones and The Beatles.
No formal bid has been made and the terms of any offer are unclear but Warner said Impala, which represents independent music publishers and labels, had agreed to provide full and complete support for a Warner-EMI merger in front of regulators.
Patrick Zelnick, vice-chairman of Impala, said his group had decided it was better to have “three strong majors [Universal, Sony BMG and Warner-EMI] and a strong independent sector” than to let the industry lose more power to the likes of Apple. “I find it sad that the content industry is so weak in front of the big technology companies,” he said.
Warner has agreed to fund a digital rights licensing platform for independent music labels; to divest certain recorded music assets “to reinforce the market power of the independent sector”; and to make other, unspecified commitments.
A two-year campaign by Impala led to last year’s decision by the European Union’s Court of First Instance to refer the 2004 clearance of the merger of Sony and Bertelsmann’s recorded music businesses back to the European Commission. With the Commission expected to an-nounce a second stage to its Sony BMG review within two weeks, Impala said it would not drop its opposition to the Sony BMG deal, or to Universal Music’s purchase of BMG Music Publishing.
Brussels’ willingness to re-authorise the Sony BMG merger, which cut the number of big recorded-music groups from five to four, is still unclear, as is any likelihood that it would permit the industry to shrink from four to three majors.
The deal between Impala and Warner surprised antitrust officials and lawyers in Brussels. Several lawyers said it was rare – if not unique – for a company to agree to concessions with rivals before winning either the support of the prospective merger partner or notifying a deal to Brussels.
A spokesman for Neelie Kroes, the EU competition commissioner, said: “The Commission examines all notified mergers and takeovers diligently with a view to assessing whether there would a negative impact on effective competition – irrespective of whether there are any active complainants.“
Warner’s approach to EMI was made on January 24, before the UK group’s second profits warning of the year. But it was disclosed only after press speculation. EMI rejected Warner’s last approach, which valued the group at 320p a share.
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