1. The Impact of Concentration on Music: The Sony/BMG Merger BY:LARM Seminar February 2006

2. THE ACTORS SONY/BMG IMPALA THE EUROPEAN COMMISSION THE EUROPEAN COURT OF JUSTICE ANY OTHERS?

3. THE EC PROCESS Notification MTF: 9 January 2004 Statement of objections: 24 May 2004 Hearing: 14-15 June 2004 EC Decision: 19 July 2004

4. THE FINDINGS OF THE EC (SOJ) (1) The recorded music market depends on the competition between the oligopolists : the Majors The music market is conducive to oligopolistic dominance The music industry has a long history of close cooperation between the companies Reduction from 5 to 4 will strengthen situation of collective dominance

5. THE FINDINGS OF THE EC (2) Few incentives to compete on price- parallelism of average prices/high prices Price transparency / coordination of behaviour A commonality of interests conducive to collusion (J.V – compilation) High barrier of entry Impact online music (SONY)

6. Findings on the Independents (3) Not effective competitors to the majors A rare species – (38 music publishing labels – A&M, Motown, Island, Virgin, Barclay, Sonet …) Major innovators (half of the majors’ catalogue)

7. THE MERGER JUSTIFICATIONS Demand decline – (25% over 4 years) Cost savings (400 million Euros) Competition from other products (GAMES) Compete with Universal Developing online market (Piracy)

8. IMPALA’s VIEWS (1) Increased concentration impedes MARKET ACCESS Reduces consumer choice – cultural diversity Music risk being devalued (Bundling) Risk of vertical integration (Broadcast Online) 5 to 4 will lead to further marginalisation

9. IMPALA’s VIEWS (2) Concentration kills the industry (less creative) Market decline is due to majors’ behaviour (short term vision – marketing coup) Will increase marketing costs and bidding price for artists Easier to collude

10. Walter Yetnikoff, President and CEO CBS and Sony Music Group from 1975 to 1990 “The conglomerate stuff is one of the major causes of today’s problem and it has been accompanied by what I think is a lot of greed by all concerned”. “The corporate culture is stultifying a lot of the creativity”. “Do you think Bob Dylan could get a record contract today?” Billboard 8 May 2004

11. Alain Levy, Chairman and CEO EMI Music “Too many acts in the industry over the last three years are one hit wonders. We are not creating longstanding artists. It is another disease of the industry. Yes, piracy is a problem…. But it’s the artists – the stars – who create the consumption”. “Most of the problems are coming from the strategic direction of the industry and its emphasis on market share.” Billboard 17 January 2004

12. Hilary Rosen, former CEO of the Recording Industry Association of America. “What companies are likely to do after a merger is increase the number of profitable artists going through the pipelines – in other words get rid of less profitable artists”. 11.10.2003

13. THE EC INVESTIGATION Pricing of top 100 albums to top 20 customers ( 5 markets) Discount policy Transparency ( IFPI-BIEM-market share –Vertical integration – links ( JV)

14. THE EC DECISION (July 2004) UNCONDITIONAL APPROVAL Market investigation is not conclusive to establish collective dominance AIRTOURS JURISPRUDENCE CRITERIA (coordination – transparency – retaliation) The Key : CAMPAIGN DISCOUNTS (Reduced market transparency) No evidence of collective dominance on the market for licences for online music NEVERTHELESS: the high degree of concentration remains a concern

15. THE EUROPEAN COURT OF JUSTICE (November 2004) Granted expedited procedure Hearing September 2005 Decision ?

16. LESSONS TO BE LEARNED? Collective representation makes a difference Legal aid ? Leverage political weight on a commercial level Difficulty to connect with NGOs (www.forculturaldiversity.org)www.forculturaldiversity.org

17. Impala – Independent Music Companies Association 51 rue du Trône 1050 Brussels T : +32 2 289 26 00 www.impalasite.org