BACKGROUND TO SONY /BMG AND GUY BONO’S QUESTION

This is the Commission’s second review of the Sony/BMG merger. The EU’s first assessment was set aside last summer by the European Court. The court upheld an appeal by IMPALA of the approval of the merger in 2004 without remedies.  This echoed the Commission’s finding in 2000 when it held that EMI/Warner should not be allowed without remedies – a stance which lead to the parties walking away from the merger.

Earlier this year IMPALA called on the Commission and the majors to work together with the independents towards market recovery through broad and constructive remedies, such as those already agreed with Warner Music Group.

In May, the EC authorised the Universal/BMG Music Publishing merger but only on the basis of remedies, including divestments.

At the same time, all the European Heads of State called on the Commission to ensure that there is proper support for small operators in the creative sector.

Last month in Lisbon, the Portuguese Presidency hosted the EU Cultural Forum, attended by the EU President Barroso and Culture Commissioner Jan Figel. The Forum again underlined the importance of the creative industries and the fundamental role of SMEs in promoting innovation. Market concentration was identified as a key issue for creative SMEs, along with under-capitalisation.

There are considerable market access barriers to entry and growth (increased costs of marketing and competing with the majors to sign artists; difficulty of getting into retail, on radio, tv, print media etc). An independent could never grow to become the size of a major. There have been no new independent market entrants.

Twenty years ago, the market was completely different. It was balanced by an array of big independents who competed effectively with the majors because they had scale.

Waves of consolidation have reduced the music’s competitiveness as well as consumer choice and cultural diversity. Now over 95% of what most citizens hear on the radio and see on television or on the internet is controlled by four companies.

The Sony BMG merger has also comforted the development of a duopoly with SonyBMG and Universal.  This has made it harder for independents to promote new artists. The market share figures speak volumes. These two companies alone have over 50% of the total market and 70% of the vital Top 100 in many key EU territories (EC’s own market share analysis in UniBMG). Even the “mini majors” EMI and Warner no longer have critical mass - they only have 10% and 14% respectively of the national Top 100s. Their market share has plummeted in two years. As for the other competitors, no independent has even 1.5%.

The Commission has devoted itself to other problem markets, such as energy. The market share figures show music to be a market which is more marginalised and closed than energy. IMPALA has requested the Commission to review the whole sector.

SMEs in the music sector create more jobs than the majors and represent 99% of the actors in the market as well as 80% of the innovation in the sector.  As in other sectors, it is the SMEs in music that drive creativity and innovation. There is no issue competing if they have the same chance as the big companies. The problem lies where the playing field is not level due to severe market access problems created by over concentration in a cultural industry.

The EC is currently working on a “Agenda for Culture” to make sure culture is properly mainstreamed into all key policy areas. The key issue for SMEs is to make sure they are are free to realise their creative and commercial potential on behalf of artists and other music makers in Europe.

Article 151 (4) of the EC Treaty obliges the Commission to take cultural diversity into account in ALL decisions. In March this year, the UNESCO Convention came into force in Europe and the rest of the world. One of its basic principles is that “cultural diversity is needs diversity of artistic creation and production. Another is the need for equitable access to the means of creation and production. This Convention will now need to be implemented by the EU and other countries which are signatory.

The European Ombudsman is based in Strasbourg and investigates complaints about maladministration in the EU institutions. The current Ombudsman is Mr P. Nikiforos Diamandouros.

In 2006 the European judges found that the Commission had ignored overwhelming evidence that competition would be severely damaged by Sony/BMG and had made an unexplained u-turn when it walked away from the serious objections that it had previously highlighted. The court found that the recorded music market suffers from collective dominance and co-ordination, characterised by:

  1. alignment of prices, both gross and net,
  2. transparency of discounts and  other terms, including campaign
  3. stable and relatively high level  of pricing, considering significant fall in demand
  4. links between major companies (e.g. JVs for compilations, distribution and licensing, industry association membership, joint copyright negotiations, merry-go-round of senior executives, vertical links)  
  5. relative stability of market shares (i.e. if they were really competing we would expect to see real variations)  
  6. homogeneity of product (even though content is heterogeneous)
  7. existence of deterrents

   
The court also identified 8 points on price that make music very transparent and easy to co-ordinate prices and other competitive behaviour.

       1. Public nature of PPDs
       2. limited no of reference  prices  
       3. limited no of albums that need to be monitored  
       4. publication of weekly charts   
       5. long-term stable relationships between retailers and majors  
       6. limited no of players on market   
       7. monitoring of the retail market   
       8. regular and permanent contact between majors' sales forces and retailers and distributors.