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All aspects of EU competition "law", including merger controls, have been subject to the criticism that they are run too often by complainants who are competitors of the parties under investigation. But the criticism is not always valid. This is shown by the inability of Microsoft to stop the EU Commission taking action against it despite a large number of its competitors withdrawing their complaints. A complainant's "thumbs up" or a "thumbs down" may not be decisive or even particularly influential. The controversial "deal" between IMPALA and Warner needs to be seen in this light.
Any "deal" is unlikely to sway the EU Commission, for two reasons. The first is that the EU Commission's concern is likely to be the interests of the consumer. However wide ranging any agreement might be between IMPALA and Warners in relation to divestitures (where, incidentally, prospective purchasers are always carefully vetted through an independent process) and however generous subsidies for internet distribution platforms might be, the interests of the consumer (as identified in previous procedures) cannot be satisfied easily.
For example, having said that secret discounting was very common in clearing the Seagram/Polygram merger in 1998, the EU Commission has expressed concern that mergers between majors would increase price transparency between the majors; increased transparency makes price coordination more easy and secret discounts unlikely. In its approval decision of the Sony BMG merger, the EU Commission tried to revert to its 1998 reasoning but the Court of Justice emphatically rejected the EU Commissions' volte face on the facts (see EW 278 for more details). Moreover, the Court of Justice accepted IMPALA's argument that the absence of actual retaliation in response to price cutting by the majors did not prove that there was no ability to retaliate but simply that the mere threat of it was sufficient to keep prices at similar levels and to discourage price cutting in circumstances where prices were generally (and undesirably) uniform.
As matters now stand, if consumers' interests in having some genuine price competition are to be safeguarded, the Commission is either going to have to "stand up" its 1998 market analysis this time and approve the Sony/BMG merger (in which case the concern will have been considered misplaced) or revert to its original EMI/Time Warner analysis and block it. Bearing in mind that in the previous examination of an EMI Warner tie up, the Commission was concerned that Warner would increase their prices to EMI's levels as a result of the merger, it is clear that there is nothing that some "indies" can do to deal with objections based on consumer detriment for which there is already a substantial body of support. It follows that even if Warner were to come up with a merger proposal that was satisfactory to EMI, regulatory approval could not be guaranteed just because IMPALA was satisfied.
The second (and related) reason why a "deal" between IMPALA and Warner's won’t necessarily work is that a number of music industry practices have to be changed on an industry wide basis if individual merger approvals are to be granted. The EU Commission cannot bring about industrial reorganisations in the context of individual merger applications. Thus it can't change across the board the way prices are published or the location of the various price points for CD's. If the EU Commission can't do this, a "deal" between some "indies" and one major won't ease the passing of a merger. Either there is going to have to be an industry wide agreement or the EU Commission is going to have to decide that consumers are no worse off if four becomes three and get it "right" third time. The real action will therefore take place in the context of the in-depth investigation of BMG/Sony.
Consequently, the IMPALA Warner "deal" is creating a lot of sound and fury that does not signify a great deal – at least as far as consolidation of the majors is concerned. Stephen Hornsby
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Simkins' early warning bulletins are for general guidance only. Legal advice should be sought before taking action in relation to specific matters. Where reference is made to Court decisions facts referred to are those reported as found by the Court. Please note that past bulletins included in the Archive have not been updated by any subsequent changes in statute or case law.
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