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It is the mega-merger that could transform the music industry. Lucian Grainge, the British boss of the world's biggest record label, US-based Universal Music, wants to buy the fourth-largest, EMI.
The deal would see Universal, home of Lady Gaga, the Rolling Stones, Take That and U2, unite with the famed British label behind The Beatles, Coldplay, Katy Perry and the Abbey Road studios in St John's Wood.
For London-born Grainge, buying EMI is personal. "Its artists and their music provided the soundtrack to my teenage years," he said when he agreed the £1.2 billion purchase of EMI's recorded music arm from US bank Citigroup in November.
But the big issue is that the merger of Universal and EMI, which have worldwide shares of 28.7% and 10.2% respectively, will give Grainge almost 40% of the pie.
So could regulators - egged on by smaller music industry rivals - block it? The signs are that Universal, owned by French media giant Vivendi, could face quite a battle for clearance.
Universal has already filed papers with Federal Trade Commission regulators in Washington. Now the music label is poised to apply formally to the European Commission in Brussels as soon as next week.
The looming deadline is spurring other music industry groups that oppose the deal into action.
Sony, the world's second-largest label, is unlikely to complain as it led a consortium that agreed to buy EMI's publishing rights business at the same time as the Universal takeover. But independent labels, led by European trade body Impala and UK counterpart AIM, are strongly opposed to the break-up of EMI.Martin Mills, who co-owns Adele's label XL, has written in a letter to MPs that the Universal takeover is "breathtaking arrogance" given its "existing dominance in an over-concentrated market".
The Evening Standard understands that it is also highly likely that Warner Music Group, the world's third-largest music company, will be opposing the merger in multiple territories. It is thought that regulators in Australia, Brazil and Japan could become involved. However, Brussels holds the key because it covers 27 countries, overriding the Office of Fair Trading in Britain, for example.
No one at Universal wants to go on the record but those close to the company have a clear message: They will respect EMI's heritage, nurture its historic labels such as Parlophone and Capitol as standalone businesses, invest in organic growth, spend close to double on A&R to find new talent, and retain Abbey Road.
They argue that Universal-EMI's 40% share and pricing power aren't the real issues when there is rampant piracy, an abundance of free music on the internet, and Apple, Google and Amazon have muscled onto their turf. What is more, without Universal's investment, EMI's future would be very uncertain, they say.
Opponents don't agree. They warn that Universal will set the terms, and artists will have fewer places to go. The combined labels would have close to a 45% share in physical sales in Britain while digital could exceed 50%. Before Christmas, the two labels had virtually all the top 20-selling albums in the UK classical charts.
Universal acknowledges it may need to sell assets in some territories. However, critics are adamant the merger is, in the words of one source, "so egregious" that divestments won't be enough. They certainly don't buy the argument that piracy means market share no longer matters.
Recorded music is still worth $16.2 billion (£10.4 billion), with digital revenues jumping 8% to $5.2 billion last year, according to new figures from global trade body the IFPI.
Impala executive chair Helen Smith believes that Universal and Sony are already too big - even before the mergers. Universal-EMI becomes even more dominant in recorded music and Sony-EMI rules in publishing, she says. "You are effectively going from four to two because EMI is out of the picture and Warner is so small," she argues. "It's going to be quite easy for the regulators to say no altogether."
The Universal takeover faces the tougher fight.
Previous mergers such as Sony-BMG faced fierce scrutiny. The EC process is set to take eight months and the battle could get ugly. Some observers darkly mutter that Vivendi is French, implying promises to protect EMI's labels should be treated with caution.
In the meantime, those working at EMI must hold the fort when it can't be easy to retain talent. But insiders point out it has just signed dance star Eric Prydz, and the label had 20% of the UK singles market last week.
Universal's lawyers must be at their most persuasive to convince Brussels.
Reader views (3)
universal music are masters at creating stand alone labels like sanctuary and varese but unfortunatly sanctuary had their stand alone web site for a short while varese kept their stand alone web site and they still have it,while sanctuary goes with on line web sites,so if they are going to make emi a stand alone web site they had better keep it as long as varese,s
- david swallow, fort worth united states, 23/02/2012 00:51
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cassette,vinyl.8 track,beta max,vhs cd,dvd,dead the internet has killed them all everybody wants something for nothing but in the end thats what you get theft is theft how many good new bands have folded because of piracy.
- DAVID GOLDIE, WOKING UK, 30/01/2012 16:40
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The music business as we knew it will never make money due to illigal downloading. Fact, legal downloads are 90%, illegal 20%
The Russian, Leonard Blavatnik who recently bought Warner Music for $3 billion must be wondering what he has done to get involved in a dying industry. Warner Music has not made a profit for three years and interest on a $3 billion loan is around $90 million per year at 3%
The fact that Warner's name has not been metioned with the EMI may be an indication that once the lyrics have been sudied in the financial books, the music does not sound so appealing.
Vivendi, owner of Universal must have deep pockets.
Ask your own children if they are given £10 would they download a CD legally or illegally.
Guy Hnds was no fool when he cut his losses and walked away from EMI.
The money in the short term is in live perfomances, yet the prices being charged of late will turn people away from attending the medium.
- jim king, london, 26/01/2012 14:27
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