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Universal’s bid for EMI music division approved

Regulators in the U.S. and Europe on Friday approved Universal Music Group’s $1.9-billion acquisition of EMI Group Ltd.'s music division, giving the Los Angeles-based music company control of the Beatles music catalog and the iconic Abbey Road studios in London, but forcing it to divest interest in the music of Coldplay.

The merger will create an even larger global music conglomerate and put the vast majority of commercially released music into the hands of three international giants: the Universal, Sony and Warner music groups.

In the U.S., the Federal Trade Commission approved the deal without condition. But Universal is required by EU officials to sell off many EMI assets to help keep the new entity from obliterating smaller independent companies.

Nevertheless, Universal Music Group officials hailed a double victory that “will allow us, I hope, to do our bit to return the industry to growth,” Chairman and CEO Lucian Grainge told The Times on Friday. “It will enable us to continue to invest in more music, to create investment opportunities for the entire Universal group, it will give us the opportunity to work with entrepreneurs in different genres and it will give us a cushion through this crucial crossover period as we hurtle toward a primarily digital business.”

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The deal puts UMG in a clear leadership position in terms of overall market share, even if a precise calculation of that share will be difficult under the complexities of the divestiture requirements.

In 2011, UMG tallied 29.9% of total album sales in the U.S., according to figures from Nielsen SoundScan. That was slightly ahead of Sony Music Entertainment’s 29.3%, and well in front of Warner Music Group’s 19.1% share. EMI accounted for 9.6% of the market, with the remaining 12.1% going to various smaller companies.

Executives from the Warner Music Group and Sony Music on Friday declined to comment on the decisions, which were praised in some quarters as good for consumers.

“Big isn’t necessarily bad,” Berin Szoka, president of TechFreedom, a nonprofit, nonpartisan technology policy think tank, said in a statement. “Combinations like this one can benefit consumers. The FTC deserves credit for carefully analyzing this deal.”

Not everyone, however, agreed with the FTC and EU decisions.

“This merger gives Universal increased incentive and ability to discriminate against digital music services that challenge their business models,” said Jodie Griffin, a staff attorney for Public Knowledge, a nonprofit consumers rights group that also opposed the AT&T; and T-Mobile merger. “We think that the FTC should have done more to protect competition in the U.S.”

The EU insisted that Universal sell EMI’s 50% share of the widely popular “NOW! That’s What I Call Music” hits compilation series and divest itself of subsidiary labels such as Chrysalis, Virgin Classics, Ensign and Mute and EMI units in 10 European countries.

Universal is also required to part with recording artists currently on the Parlophone label, such as Coldplay and Gorillaz, but it was not required to part with the gold mine of Parlophone catalog recordings of the Beatles.

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But even without many significant EMI assets, Grainge said, “We’ve been cleared to acquire two-thirds of EMI, and we now own iconic companies and brands such as Harvest, Capitol Records, Virgin Records, the EMI label, Abbey Road Studios ... the Beatles, Robbie Williams, Beastie Boys, Katy Perry, Lady Antebellum, 30 Seconds to Mars, Charles Aznavour, Deep Purple and Nat King Cole.”

Universal also will assume and maintain EMI’s lease on the Capitol Records Tower in Hollywood, which houses Capitol offices as well as its famed recording studios. The building was sold in 2006 to Argent Ventures of New York, which leases the facilities back to EMI under a long-term deal.

Grainge said Universal will take ownership of the EMI properties “in approximately a week. Situations like this involve a whole series of integrations, but until we had approval it would have been impossible and irresponsible to talk about plans in terms of those integrations. Now that we’re cleared, we can get on with the work and start executing our plans through our teams worldwide.”

Joaquin Almunia, the EU’s competition chief, who described the divestments as “very significant” said, “The total size of the divestment package represents a very large size of EMI’s revenues in Europe, roughly speaking around two-thirds,” adding that “all the remedies mean the new entity no longer poses a threat.”

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It also means Universal may have a harder time recouping its investment after spinning off numerous revenue-generating assets.

Still, a trade group representing European indie record labels, IMPALA, said the required divestments did not go far enough.

“The independents welcome the [European Commission’s] conclusion that Universal’s power is a problem across the whole market, both digital and physical, including access to media,” said an IMPALA statement. “The remedies package put in place, however, is not considered to be tough enough to curb Universal’s improved market position.”

Ted Cohen, managing partner of TAG Strategic, a digital media consulting firm, said Friday, “I, for one, am glad to see this merger successfully resolved. The EMI team has done some brilliant work in the face of drastic uncertainty. Now that the deal can move forward, artists can be more confident that they have reasonable security going forward. I only hope that UMG sees the value in EMI music execs such as Mark Piibe, Pat Shah and Tricia Tranquillo, who have been moving things forward in the digital/mobile space, where our futures are going to be made.”

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The consolidation of Universal and EMI appears to be the last such move on the horizon for the foreseeable future.

“The music industry is now static,” said Needham & Co. managing director Laura Martin. “I don’t think the regulators will allow any more mergers after this. This means we know what the competitive landscape looks like now and in the future. You’ll have two really big guys [Sony and Universal] and a little guy [Warner].”

randy.lewis@latimes.com

alex.pham@latimes.com

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