HITS Daily Double


BMG’s Schmidt-Holtz Presents Case Monday; Apple, Impala, Others Today
The European Commission heard from Sony and BMG Monday, as representatives including BMG Chairman/CEO Rolf Schmidt-Holtz sought to rebut the European regulatory body’s objections to the companies’ proposed recorded-music merger.

Schmidt-Holtz made at least part of BMG’s presentation personally as a way of reinforcing the importance of the merger to the Germans, according to a Dow Jones report.

Monday’s hearing focused largely on the EC’s perception that the major music companies operate under a system of “tacit collusion” and a re-examination of the pricing data underpinning that perception. Possible concessions the two companies might offer to counteract the EC’s objections were reportedly not discussed.

“Discussions were constructive and our impression is that our presentations on the business environment and the nature of music as a cultural product, are understood,” a Bertelsmann representative told Dow Jones. A spokesman for European independent-label trade org Impala, however, characterized Sony and BMG reps as “a little shaken” by the Commission’s questioning.

Impala, which got its chance to argue against the merger in front of the EC today—along with other opponents including Apple Computer—maintains that the creation of another “supermajor” (along with Universal Music Group) would inhibit smaller labels’ ability to operate and maintain diversity in the marketplace, according to the Financial Times.

Apple reps reportedly used their time to express concern that the merger would give Sony control of digital rights for a disproportionate amount of music content while operating in the digital-distribution sector itself. Apple, of course, owns market-leading online store iTunes, while Sony recently launched its own online music site, Connect.

For their part, Sony and BMG feel the EC hasn’t interpreted pricing data properly in saying that price-fixing exists among the majors, calling the Commission’s conclusions speculative. The companies argue that the EC’s method of averaging prices across quarterly periods and across genres eliminates the pricing variations that are the result of separate negotiations with various retailers. Further, they say the rise of mass merchants has shifted the ability to set prices away from the majors. As a result, the companies argued Monday, the EC has not met the “high standard of proof” for cases such as theirs, the FT report says.

Sony and BMG have also argued that the music business has changed radically since the last time the EC moved to oppose a major music merger (between Warner Music Group and EMI in 2000), citing Internet and physical piracy, as well as increased competition from other sectors.

The EC is said to be considering the Sony-BMG case especially carefully because it has seen some of its recent decisions to block mergers overturned by European courts.

An internal “devil's advocate panel” will reportedly scrutinize the EC’s position on the deal later this week. Sony and BMG will then have the opportunity to offer concessions to address the Commission’s remaining objections.

The deadline for an EC ruling is July 22, though a decision could come before that time.