EMI Group Ltd., the iconic British music company that is home to The Beatles, Coldplay and Katy Perry, is being split and sold for $4.1 billion.
The deals will open EMI’s buyers, Universal Music and Sony/ATV, to regulatory scrutiny as they increase their dominance of the music industry.
Universal Music Group said Friday that it will pay 1.2 billion pounds ($1.9 billion) for the recording division, joining Universal artists including Lady Gaga and Eminem with EMI superstars such as David Guetta and Lady Antebellum.
A consortium led by Sony/ATV announced a separate deal Friday to pay $2.2 billion for EMI’s publishing division. That business is in charge of songwriting copyrights for such artists as Rihanna and Norah Jones.
Sony/ATV, a joint venture between Sony Corp. and the Michael Jackson estate, said it is a 38 percent partner in the consortium. Other parties include Mubadala Development Co., Jynwel Capital Ltd., the Blackstone Group and David Geffen.
The two-part sale, if approved by regulators, would further increase Universal Music’s dominance in recorded music and springboard Sony/ATV into the top spot as a music publisher, according to Impala, an association of European independent music companies that is against the deal.
The purchases would give Universal Music and Sony/ATV undue negotiating power over artists and distributors of music, even over the world’s biggest music store, Apple Inc.’s iTunes, Impala said.
Both deals are expected to be carefully reviewed in Europe, the U.S., Japan and Australia. Even if regulators approve, they could force the sale of key assets or attach other terms.
Helen Smith, Impala’s executive chairwoman, noted that when Universal Music bought music publisher BMG in 2007, it had to sell some assets to get smaller.
“When you have players which are dominant, even if they take over small players in market share, that can have a serious impact on competition,” she said.
Jean-Bernard Levy, CEO of Universal Music parent company Vivendi SA, told analysts on a conference call that he was “very confident” the deal would be approved in as little as 10 months.
In the United States, Universal is the top music producer with a 30 percent market share compared with EMI’s 9 percent, according to Nielsen SoundScan. With a combined share of 39 percent, they would tower over Sony at 29 percent and Warner Music at 19 percent.
On the publishing side, Sony/ATV will add EMI’s 1.3 million song copyrights to its roster of 750,000 songs that include hits from The Beatles, Bob Dylan and Taylor Swift.
The deal leaves Citigroup, EMI’s current owner, with liability for its underfunded pension plan, according to two other people familiar with the talks. One put the liability at $600 million, the other said it was about $260 million.
Neither person was authorized to speak publicly and spoke on condition of anonymity.
Citigroup had put EMI up for sale in June, four months after it foreclosed on private equity firm Terra Firma. Terra Firma bought EMI in 2007 in a $6.8 billion acquisition financed with debt from Citigroup, but it couldn’t make enough money to keep up with the terms.
Vivendi believes it is swooping in to buy a troubled asset at an “inflection point” in the music industry, Levy said. Thanks to gains in digital track and album sales, overall U.S. album sales are up 5.2 percent at 360 million units so far this year, according to SoundScan. At this point last year, overall album sales had plunged 10 percent.
Vivendi expects to cut costs and save more than $150 million a year — making the deal profitable even if the music industry doesn’t grow in the future. Vivendi expects the deal to boost its profits in the first year after regulatory approval.
Morningstar analyst Allan Nichols, who covers Vivendi, viewed the deal with trepidation on fears that the music industry could resume its decline and that regulators could reject it.
But antitrust regulators could be more lenient of big tie-ups when the music industry is struggling to recover from more than a decade of online piracy, he said.
Also, Vivendi is paying less per dollar of earnings than Access Industries’ Len Blavatnik did when he took Warner Music Group Corp. private for $1.24 billion in July.
“The catalog is very impressive, and they didn’t pay a whole lot,” Nichols said.
Sony/ATV’s interest in expanding its library is due to the stability of licensing music copyrights, a business that has been profitable over the years because it relies on business customers like filmmakers instead of individual consumers.
Sony/ATV plans to reap new revenues from the EMI catalog, which includes around 100 No. 1 hits from Motown artists Smokey Robinson, Marvin Gaye, Stevie Wonder and The Supremes.
“We think there are biopics and life stories yet to be told about them,” said Sony/ATV Chief Executive Marty Bandier in an interview. “There’s a depth and quality to this asset that can’t be compared to anything.”
In a move that may appease regulators in Europe and the U.S., Vivendi said it would sell 500 million euros ($680 million) worth of non-core assets, mostly minority stakes in companies that it did not disclose. Strategic bidders that lost out on the auction, such as Warner Music, are expected to vie for those assets.
Vivendi said that London-based EMI would find a safe home at a company headquartered not far away in Paris.
“For me, as an Englishman, EMI was the pre-eminent music company that I grew up with,” Universal CEO Lucian Grainge said in a statement. “UMG is committed to both preserving EMI’s cultural heritage and artistic diversity and also investing in its artists and people to grow the company’s assets for the future.”
Grainge said on the conference call that he would ensure the famous Beatles’ recording studio, Abbey Road Studios, would remain open as a “symbol of British culture.”
Universal released statements from bands in support, including from Coldplay manager Dave Holmes, who said “this can only be a positive for the artists and executives at EMI.”
Apple and Google Face UK Investigation Into Mobile Browser Dominance
Apple and Google aren't giving consumers a genuine choice of mobile web browsers, a British watchdog said Friday in a report that recommends they face an investigation under new U.K. digital rules taking effect next year.
The Competition and Markets Authority took aim at Apple, saying the iPhone maker's tactics hold back innovation by stopping rivals from giving users new features like faster webpage loading. Apple does this by restricting progressive web apps, which don't need to be downloaded from an app store and aren't subject to app store commissions, the report said.
"This technology is not able to fully take off on iOS devices," the watchdog said in a provisional report on its investigation into mobile browsers that it opened after an initial study concluded that Apple and Google effectively have a chokehold on "mobile ecosystems."
The CMA's report also found that Apple and Google manipulate the choices given to mobile phone users to make their own browsers "the clearest or easiest option."
And it said that the a revenue-sharing deal between the two U.S. Big Tech companies "significantly reduces their financial incentives" to compete in mobile browsers on Apple's iOS operating system for iPhones.
Both companies said they will "engage constructively" with the CMA.
Apple said it disagreed with the findings and said it was concerned that the recommendations would undermine user privacy and security.
Google said the openness of its Android mobile operating system "has helped to expand choice, reduce prices and democratize access to smartphones and apps" and that it's "committed to open platforms that empower consumers."
It's the latest move by regulators on both sides of the Atlantic to crack down on the... Read More