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EC ready to oppose EMI, Warner deal

Speculation surfaces about other bidders

European Commission staff reportedly has drafted a decision to block Time Warner’s $20 billion acquisition of music giant EMI on the grounds it would stifle price competition.

The decision, which will be circulated by Brussels staff to members throughout the European Union today, makes it unlikely the TW-EMI merger can be saved, the Financial Times reported.

“It is highly likely the oligopolists will coordinate prices,” the FT quoted from an EC document. “Records are price-insensitive products, and therefore there would be very little incentive to compete on price.”

A New York-based EMI spokeswoman declined comment. But a statement issued in Europe for U.K.-based EMI claimed that negative assessments commonly are drafted by EC staff as a matter of course and that talks with the commission continue in an effort to allay its concerns.

Nevertheless, speculation has gathered that other bidders for EMI now will surface. Germany’s Bertelsmann and Spain’s Telefonica are mentioned most prominently.

EMI execs are scheduled to meet with EU competition commish Mario Monti on Monday. It had been assumed the meeting would be key to saving the deal, which has been beset by mostly European concerns that combining Time Warner’s own massive music holdings with those of EMI would place too many music assets under one corporate roof.

Philippe Kern, secretary-general of independent record companies association Impala, told Daily Variety on Thursday that the core issue remained “the two companies’ ability to control both the existing music markets and the future markets for online delivery.” Kern has led a forceful lobbying campaign against the deal in Brussels.

A formal decision from the commission is expected by early October.

The proposed merger of Warner Music Group and EMI arose from the need of both companies to improve their current market share as music distributors. Currently, the two entities are bringing up the rear among the big five music groups.

What the EC is most concerned with is the music publishing monolith that would be created by a TW-EMI merger. The combined companies would control roughly half of all music publishing rights, and commission staff has suggested that kind of clout approaches monopoly control.

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