The UK’s Competition and Markets Authority (CMA) has decided that Sony Music’s completed purchase of recorded music services firm AWAL from Kobalt Music Group raises competition concerns, following a Phase 1 investigation into the buyout.
That same week, the UK’s Competition watchdog announced that it would investigate the buyout, which Sony has previously valued at $430 million. (Kobalt Music Group Ltd is a UK-based company.). The inquiry was then launched at the beginning of July.
Sony must now address the CMA’s concerns within five working days. If it is unable to do so, the deal will be referred for an in-depth Phase 2 investigation.
At the core of the CMA’s concerns is that the deal “could lead to worse terms for artists and less innovation in the music sector”.
As part of the Phase 1 investigation, the CMA says that it found evidence that, if the deal had not been agreed, “Sony and AWAL could have competed more strongly with each other in future”, because AWAL was “well-placed to grow its business even further in the coming years”.
Elsewhere in the CMA’s statement, it says that there is “also evidence that Sony intended to expand The Orchard’s offering, focussing more on the emerging pool of smaller artists, which would have led it to compete more with AWAL”.
Sony fully acquired independent music distribution/services company The Orchard in March 2015, buying the half of the company it didn’t already own in a $200 million deal.
Additionally, according to the CMA, Sony Music and AWAL competing in the market could have benefited artists “by improving the terms of their deals with distributors, potentially allowing them to keep a larger share of their earnings and to have more ownership of their music rights”.
Added the CMA in a statement today: “The CMA is … concerned that the loss of an innovative competitor like AWAL could, despite continued presence of the other major labels, lead to worse terms for artists and less innovation in the music sector.”
“The CMA is … concerned that the loss of an innovative competitor like AWAL could, despite continued presence of the other major labels, lead to worse terms for artists and less innovation in the music sector.”
Competition and Markets Authority
As noted in the CMA’s announcement today, its decision comes two months after the publication of a report from a inquiry into the Economics of Music Streaming by the UK Parliament’s Digital, Culture, Media and Sport (DCMS) Committee, which also raised concerns about the position of the major music groups in the UK market.
According to the CMA, its own investigation found that “the wholesale distribution of recorded music in the UK is highly concentrated at present”, with the three majors accounting for “the vast majority of the market”.
It adds that AWAL is an “important emerging player”, and “one of the few suppliers” outside the majors that have “succeeded in gaining a meaningful foothold in the market”.
In a statement issued today, Sony Music Entertainment called the CMA’s decision “perplexing” and “based on an incorrect understanding of AWAL’s position in the UK”.
“This decision by the CMA is perplexing and based on an incorrect understanding of AWAL’s position in the UK.”
Sony Music Entertainment
Sony and AWAL now have five working days to offer legally-binding proposals to address the CMA’s concerns.
The CMA would then have a further five working days to consider whether to accept any offer instead of referring the case to a Phase 2 investigation.
The CMA has found competition concerns with regards to Sony’s purchase of AWAL, but not with regards to Sony’s purchase of Kobalt Neighbouring Rights.
Said Sony Music Entertainment in a statement today: “This decision by the CMA is perplexing and based on an incorrect understanding of AWAL’s position in the UK.
“We strongly believe this transaction is unambiguously pro-competitive and that our investment in AWAL is key to its continued growth, and future success.
“Every other regulatory body that has reviewed this transaction has agreed with our view and approved it quickly. We will continue to work closely with the CMA to resolve any questions they might have.”
“We’re concerned that this deal could reduce competition in the industry, potentially worsening the deals on the table for many music artists in the UK, and leading to less innovation across the industry.”
Colin Raftery, CMA
Colin Raftery, Senior Director at the CMA, said: “The music industry forms an important part of the UK’s flourishing entertainment sector, and it’s essential that distributors continue to compete to find new and creative ways of working with artists.
“We’re concerned that this deal could reduce competition in the industry, potentially worsening the deals on the table for many music artists in the UK, and leading to less innovation across the industry.”Music Business Worldwide