Universal’s EMI deal faces chorus of dissent.
As most of Paris prepares to shut down for the summer, there’s one man who won’t be joining the rest of the French elite in taking an extended six-week holiday on the Côte d’Azur.
7:00AM BST 16 Jul 2012
Jean-René Fourtou, the boss of Universal Music’s French parent company, is working against the clock to persuade European competition officials that the recording giant’s proposed £1.2bn takeover of EMI from Citigroup will be in the best interests of the embattled music industry.
In an unusual intervention, Mr Fourtou, chairman of Vivendi, has taken charge of Universal’s campaign in Europe to secure the recorded music division of EMI, the iconic British business behind the Beatles, Coldplay and Katy Perry.
Universal Music, which is French-owned but based in Los Angeles, has less than eight weeks before the European Commission delivers its verdict on the controversial tie-up, which is stringently opposed by rival and independent music labels.
However, Universal hopes a deal can be struck before the September deadline as it prepares this week to present a list of concessions to EU officials, designed to alleviate competition concerns.
Universal has been locked in talks with EC officials over the last seven days as Mr Fourtou and Lucian Grainge, Universal’s chairman and chief executive, battle to reach a compromise with competition authorities.
They will this week offer a series of proposed remedies, including the sale of Virgin Records, which EMI bought from Sir Richard Branson in 1992. It is believed up to 20 potential buyers have already expressed an early interest in Virgin, whose artists include the rapper Professor Green and Joss Stone.
Other concessions are likely to include the potential sale of some of EMI’s extensive recorded music catalogues.
Universal has agreed to pay Citigroup £1.2bn regardless of whether the deal passes regulatory hurdles.
Sources say executives are, therefore, willing to negotiate on a range of assets to avoid a collapse of the deal, which would force Universal to make up any shortfall if Citigroup then sold EMI to another buyer at a knockdown price.
Universal is also drawing up a “manifesto” mapping out how it believes the music industry can return to prosperity after struggling to keep up with the challenges of the digital age.
Mr Grainge, a Londoner who took the helm of Universal last year, is hoping to get industry support for the manifesto as the world’s biggest recorded music company tries to persuade regulators that it can be a force for good in a sector that is battling against internet piracy.
“The manifesto is more of an industry-orientated initiative which reflects Lucian’s desire for the industry to work together so that the creators of content get a better deal,” said one source.
Universal is pulling out all of the stops after doubts were cast over the £1.2bn deal earlier this month when European officials drew up a near 200-page “statement of objections”.
Universal has publicly downplayed the statement as a “procedural document”, insisting that only two out of the last 27 deals that came up against similar problems were rejected. However, the paper has given the deal’s critics, who include Warner Music and Beggars Group, owner of the record label that signed Adele, fresh hope that the tie-up could yet be de-railed.
The sale of EMI’s recorded music division is facing a full probe by European regulators. A separate deal that saw a Sony-led consortium take EMI’s publishing division for $2.2bn (£1.4bn) was waived through earlier this year after the buyers agreed to sell some of its global publishing rights.
The Commission’s concerns with the Universal deal revolve around the power a combined group would wield in the digital music market, allowing it to demand much higher prices from digital publishers than other labels.
Regulators are also understood to disagree with Universal’s assessment of its market share in some cases. Critics have warned a Universal/EMI behemoth would dominate half of the market in certain countries.
One such opponent, Helen Smith of Impala, the Independent Music Companies Association, says the takeover would render EMI “a danger in the physical and digital market because it cannot be adequately constrained by competitors, customers or piracy”.
Europe is not the only front where Universal is fighting a regulatory war. Mr Grainge last month faced a Senate hearing on the deal while competition authorities in Australia and Canada are yet to be persuaded. On Friday, Universal did overcame one hurdle, however, when anti-trust authorities in Japan granted their blessing to the acquisition. Nevertheless, music industry experts pointed out that both Universal and EMI are less dominant in that country than they are in other key markets.
In Europe, Universal’s lawyers will argue that market share does not necessarily equate to “market power” as internet pirates play such a large role in the industry.
Universal will also play up its desire to return EMI to health as an “iconic British business” following its ill-fated sale in 2007 to private equity tycoon Guy Hands, and its subsequent takeover by Citigroup.
“For too long EMI has been run by people with no background in the industry and we have watched on the sidelines as EMI shrank, A&R (artistic and repertoire) spend was slashed and frustrated artists left to pursue their careers elsewhere,” said one source.
But with legal opinions divided over whether or not they will succeed, Mr Fourtou potentially still faces a long and winding road before he can get his hands on EMI.