Even by the standards of joint ventures, Sony BMG has not been a roaring success. Now, in a surprising decision, the European Court of First Instance has annulled the European Commission decision that authorised the music companies’ union.

There are some precedents. In 2003, the court upheld the merger of SEB and Moulinex, the French electrical goods manufacturers, but ordered the Commission to reconsider the need for concessions. The Sony BMG ruling is a full annulment, and the Commission must re-examine the deal.

The court did not look at whether the merger should be allowed, but concluded that the Commission did not substantiate its case. Industry conditions suggest that a better argued case may still gain approval. Broadband digital distribution has lowered barriers to entry, for example, while Sony BMG has lost market share. In the event of a negative decision, concessions, not a break-up, would probably be the remedy.

Given there may be an appeal before any fresh Commission decision, a long period of uncertainty looms, with obvious implications for the timing of a potential EMI-Warner Music deal. Sony BMG approval lent confidence to both EMI and Warner that their merger would be allowed.

There are other substantive implications. The court concluded that the Commission had not adequately shown that there was no risk that a Sony BMG merger would create a collective dominant position between the industry’s big players. The burden of proof has increased and, even if Sony BMG is ultimately allowed, an EMI/Warner merger would further reduce the number of major music companies to just three.

Regulatory risk is back and the sharp drop in EMI’s share price to 277¾p and Warner’s initial decline to $25.40 are understandable. Hopes for a deal, however, remain, which suggests that the true undisturbed share prices are some way below these levels.

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