EMI, Warner Music make last pitch

Deadline looms for European Competition Commission

The European Competition Commission and EMI have been butting heads lately, but this week they’ll be singing the same tune: “What a Difference a Day Makes.”

EMI will get one last chance to plead its case for Time Warner’s acquisition of the music distributor. European Competition commissioner Mario Monti will meet with EMI officials today, one day ahead of the deadline for EMI to submit concessions to the European Commission.

The concessions, which have included the divestiture of labels or publishing companies, are needed to clear the way for the $20 billion merger with Warner Music.

“Time is running out for this merger,” says Dennis Oswell of Ashurst Morris Crisp in Brussels. “If this deal is going to live, you’ll know about it on Tuesday. Otherwise it’ll be dead.”

EU lawyers tell Variety they are skeptical EMI will come up with ways to assuage their concerns. The Financial Times reported last week that European Commission staff has drafted a decision to block the deal on the grounds that it would stifle price competition.

Elizabeth Kraus, an antitrust lawyer with Weil Gotshal & Manges in Brussels, says that while the EC appears to have rejected the remedies proposed so far by EMI, a final decision has not been made.

“It’s not as cut-and-dried as is being reported in some journals,” Kraus says.

It is nevertheless looking increasingly certain that the deal will be blocked.

The merger would reduce the number of major record-label groups from five to four and could allow TW-EMI to dominate Internet music distribution.

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

Of great concern to the EC is the potential dominance of the music publishing monolith that would be created by the merger. The combined companies would control roughly half of all music publishing rights; commission staff has suggested that that kind of clout approaches monopoly control.

“The recorded music industry is a cozy club, and membership has been declining for a long time,” Oswell says. “The EC now seems to have decided that it has declined enough and that it must not get any more cozy.”

A second problem is timing: The EC has been simultaneously reviewing the TW/EMI deal and the America Online/Time Warner transaction.

“It would have been much better for AOL/Time Warner to win clearance first and then press on with the Warner Music/EMI transaction, so the Internet issues would have been much less important than they are at the moment,” one London lawyer says.

That lawyer believes that EMI may withdraw its notification to the EC and restructure the deal to prevent it from being blocked completely.

(Phil Gallo contributed to this report.)

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