The European Union says it will keep a close eye on the international musical recording industry, despite having approved a merger of Sony and BMG, two of the biggest names in the record business. The EU executive body approved the deal because of, "insufficient evidence" that the merger would harm consumers.
The merger of Japan's Sony Music and BMG, an arm of Germany's Bertelsmann media conglomerate, will create the world's second-biggest recording company, with a 25 percent share of the global market. Only Universal, owned by Vivendi Universal of France, has a similar market share.
The tie-up reduces the number of major competitors in the recording industry from five to four. It is expected to spur the other two giants, EMI., of Britain, and Warner Music, of the United States, to restart their own merger talks, which were blocked by the European Commission, as the EU executive is known, nearly four years ago.
Ajax Scott, the editor-in-chief of Britain's Music Week magazine, says the decision to approve the Sony-BMG deal reflects a sharp change of course for EU antitrust officials, who have taken a dim view of music industry consolidation and initially frowned on the merger.
"It was quite clear that there were people within the Commission who wanted to block the deal," he said. "They issued a long initial statement of objections, and they previously blocked attempts by EMI. and Warners to merge. So, obviously, there was opposition. I think the problem that they had is that they just could not find evidence that would stand up in court, if you like, and you need to have a pretty watertight case."
A Brussels lawyer familiar with the case says Commission officials were warned to back away from most of their objections by a so-called devil's advocate panel that was set up in recent years to improve the chances that rulings by EU anti-trust authorities would stand up in court.
He says recent European court rulings overturning the Commission's attempts to block other deals, like one between two British tour operators, have made the authorities slightly gun-shy.
To overcome Commission objections, Sony and BMG decided to combine only their catalogues, pooling artists such as Sony's Celine Dion and Beyonce and BMG's Britney Spears and Christina Aguilera. Other activities, such as production and distribution of compact discs, as well as copyrights, will not be part of the merger.
Mr. Scott, the Music Week editor, says the marketplace has changed since EU regulators last looked at the music industry. He says the growing influence of mass merchants and the proliferation of music available for free on the Internet has inhibited the big companies' ability to set prices arbitrarily.
"I think one of the things that has changed, certainly over the past couple of years since they were last looking at these deals, is the Internet and the fact that the Internet is having a downward effect on pricing, whether it be through downloads or, actually you can go and find cheap CDs," he said. "So, actually, it is very, very hard for companies to try and keep prices up because consumers are going to be able to get them more cheaply."
Although the EU regulators say they will carefully scrutinize further concentration in the music industry, some observers expect them to be more flexible than in the past because of ongoing crisis in the sector. While worldwide record sales have fallen for four straight years, the number of pirate CDs sold in the same period has doubled, and they now represent 14-percent of the market.