Source: Warner Music Group “Will Be Scrutinized” by European Regulators…

So what’s the difference between a Warner Music Group and a Universal Music Group, anyway?  In the eyes of European regulators, the answer might be ‘not much,’ which is why according to a pair of sources, Warner Music’s now-confirmed, £487 million ($762 million) purchase of Parlophone Label Group is likely to get a stringent review or even a direct challenge from the European Commission in Brussels.

Parlophone was widely considered a crown jewel of the EMI label family, and an extremely painful concession by Universal Music Group to European regulators.  This is a roster that includes Radiohead, Coldplay, Daft Punk, David Guetta, and Tinih Tempah among many others, not to mention Chrysalis, Ensign, and a spread of European offices.  In fact, it was one reason for UMG’s acquisition in the first place.  “This is a very important milestone for Warner Music, reflecting our commitment to artist development by strengthening our worldwide roster, global footprint and executive talent,” proclaimed Len Blavatnik, the billionaire owner of WMG.

“Extremely Likely” Review.

Actually, a stringent review is “extremely likely” according to one source close to the regulatory process involving UMG’s long-delayed purchase of EMI.  That buyout got a ‘rubber stamp’ from a lax US, but required an unexpectedly large amount of divestitures and concessions to pass in Europe, a development that reflected a “tough bunch of Brussels bureaucrats.”  It was time-consuming, extremely expensive, and made the value of the deal highly questionable.  “They took this huge pound of flesh on the EMI purchase, which is why we’re sitting here today talking of a Parlophone deal,” the source relayed.  “The [European regulatory] concern is going to be whether this is just more major [label] consolidation.”

The Game.

Warner Music Group is often the laggard in a shrinking major label bunch.  But the bunny can cause problems and throw its weight around, particularly with the deep-pocketed Blavatnik now at the helm.  Indeed, Warner forced UMG to inflate its offer on EMI to secure the deal in the first place, according to separate sources.  And beyond that, UMG generously sweetened the deal by guaranteeing a certain amount of cash regardless of the regulatory outcome.  Warner offered a smaller amount but a near-guaranteed regulatory pass.

Which makes this a fun chess match, particularly for someone that likes to play a money-losing game called ‘I’m a record label mogul’.  “Blavatnik gets most of the good stuff [with Parlophone], he gets to cream-skim for about half the price and have some fun,” a second source noted, while still assessing the deal as “a pricey one.”

The Waiting Game.

Meanwhile, Warner is sending out expectations of a formal closure by summertime.  But as of right now, the instructions internally are not to start the combination until the feds are done with it.  “The transaction is subject to regulatory approval in several countries,” Warner Music Group CEO Stephen Cooper told employees in an internal email obtained by Digital Music News.  “Until regulatory approval is received, we must continue to operate as separate businesses and continue to interact with Parlophone Label Group as we would with any competitor, which means that there can be no exchange of confidential information.”

Wimpie Indies?

Meanwhile, questions continue to swirl around a seemingly spineless indie sector, one that seems fine with Parlophone belonging to an increasingly consolidated major label upper crust.  One take is that Warner is the smallest of the three, leaving Sony Music as the bigger acquisition concern.  But the other take is that Universal Music Group chairman Lucian Grainge effectively bought indie support by handing out morsels in the form of discounted sub-labels.  That move caused some blatantly embarrasing reversals and even in-fighting among the typically tough indie consortium Impala.

This time around, Impala seems perfectly mellow on the deal, with executive chair Helen Smith envisioning a “rebalancing effect” in which “two’s a company, three’s a crowd.”  Merlin’s Charles Caldas was equally soft, noting that a “two maxi-major” system featuring Universal Music Group and Sony Music “spelt grave danger,” while a Warner purchase somehow seemed benign.  “If you’re an indie, you need to cozy with a major now,” one source quipped.

Your Licensing Nightmare, Con’t.

Separately, insiders are noting that the purchase – if approved – would make life slightly easier for license-dependent companies, but not by much.  The reason is that a group of essentially three gigantic, closely-held companies can still effectively ruin a digital company overnight, simply by refusing a deal or demanding exorbitant licenses.  That’s a threat that’s already looming over Pandora, thanks to freshly-independent negotiators Sony/ATV and Universal Music Publishing Group.  The Parlophone deal does little to change that dynamic.

4 Responses

  1. Wimpie Indies!

    Absolutely true.

    What happens if they fight this? Indies lose:

    upsell opportunity


    offers to buy more labels

    chance of acquisition

    Which is why Caldas, Smith, Mills, Bengloff are now neutered puppies.

  2. lifer

    DMN would provide a great service by having articles link out to related content once in awhile.