{"id":139775,"date":"2022-10-03T22:27:26","date_gmt":"2022-10-03T21:27:26","guid":{"rendered":"https:\/\/www.musicbusinessworldwide.com\/?p=139775"},"modified":"2022-10-03T22:42:47","modified_gmt":"2022-10-03T21:42:47","slug":"after-10-long-years-the-handcuffs-universal-music-group-in-europe","status":"publish","type":"post","link":"https:\/\/www.musicbusinessworldwide.com\/after-10-long-years-the-handcuffs-universal-music-group-in-europe\/","title":{"rendered":"After 10 long years, the handcuffs are coming off Universal Music Group in Europe."},"content":{"rendered":"

The most significant music business news right now isn’t about a music company buying someone’s copyrights for mega-money. It’s actually about a music company’s right to do so.<\/p>\n

For the past decade, Universal Music Group, the world’s largest music rights company, has been legally prevented from buying certain assets \u2013 and signing certain superstars \u2013 in Europe and the UK.<\/p>\n

That’s a direct result of restrictions put on UMG by the European Commission (EC)<\/strong> back in 2012, when the Sir Lucian Grainge-led firm acquired<\/a> the world’s then-fourth largest major record company, EMI Music<\/strong>, for approximately USD $1.9 billion<\/strong> from Citibank.<\/p>\n

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There can be no denying, in hindsight, the brilliance of Universal’s EMI acquisition: The deal netted UMG exclusive rights to catalogs by giant global artists like The Beatles<\/strong> and the Beach Boys<\/strong>, whose value has skyrocketed as streaming has cemented the premium worth of music as an asset class.<\/p>\n

The EMI deal also saw UMG acquire the world-famous Abbey Road Studios<\/strong>, plus the Virgin Records<\/strong> and Capitol Records<\/strong> catalogs and brands.<\/p>\n

Yet following the agreement of that deal, the EC launched a regulatory investigation into UMG’s acquisition of EMI. As a result, UMG was famously forced<\/a> to divest Parlophone Label Group<\/strong> \u2013 essentially, EMI’s Parlophone assets minus the Beatles \u2013 which was sold to Warner Music Group for GBP \u00a3487 million in 2013.<\/a><\/p>\n

At the time, Parlophone’s recordings catalog included the likes of Kate Bush, Gorillaz, David Bowie, Coldplay, Gorillaz, Duran Duran,<\/strong> and David Guetta<\/strong>. All went to Warner.<\/p>\n

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Universal was additionally forced to divest EMI’s 50% share of the NOW: That’s What I Call Music!<\/em> compilation brand, which was acquired by UMG’s fierce rival, Sony Music, for GBP \u00a336.1 million<\/strong> in April 2013, according to Companies House filings.<\/p>\n

The disposals didn’t end there: the EC further forced<\/a> UMG to divest multiple local EMI operations in Europe (including EMI France, EMI Spain, and EMI Sweden), plus the recorded music catalogs of labels such as Chrysalis<\/strong> and Sanctuary<\/strong> (the latter was sold to BMG for around GBP \u00a340m<\/a> in 2013).<\/p>\n

Yet the most damaging condition<\/a> placed on Universal Music Group by European competition watchdogs was this one: Universal was banned from re-acquiring any asset \u2013 or re-signing any artist \u2013 involved in its EMI-related divestments for a full decade<\/span>.<\/strong><\/p>\n

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On September 21, 2012<\/strong><\/span>, the European Commission officially announced that it had cleared UMG’s acquisition of EMI Music<\/strong>, but with strict conditions.<\/p>\n

In addition to the forced divestments mentioned above, the EC stated<\/a>, in no uncertain terms: “Universal [has] committed to not re-acquire the assets or re-sign any artists signed with the relevant entities for a period of ten years.”<\/strong><\/p>\n

This ten-year prohibition, said the EC at the time, would make sure that Universal’s EMI-related divestments would be “truly long-lasting”<\/strong>.<\/p>\n

And it has been.<\/p>\n

But guess what? Just the other week (September\u00a021, 2022<\/strong><\/span>), that 10-year deadline… expired.<\/p>\n

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Think about the impact this ten-year ban \u2013 and the concomitant heightened scrutiny from EC regulators towards Universal<\/strong> \u2013 has had on UMG’s M&A business since its EMI acquisition.<\/p>\n

For one thing, its rivals \u2013 particularly Sony Music<\/strong> \u2013 have taken full advantage of Universal’s freeze-out in Europe.<\/p>\n

Assets acquired by Sony over the past ten years to grow its European market share include Germany’s Century Media<\/strong> ($17m in 2016<\/a>), plus two prominent indie distributors: Norway’s\u00a0Phonofile <\/strong><\/a>and Germany’s Finetunes<\/strong><\/a>. (Sony also took a long look at acquiring<\/a> France’s Believe<\/strong>, before that company moved in a different direction and publicly listed in Paris.)<\/p>\n

Warner’s been busy in Europe too, paying $100m-plus<\/strong><\/a> to buy Spinnin’ Records<\/strong> in The Netherlands (2017), and then shelling out a further $180m <\/a>to buy merch and e-commerce company EMP<\/strong> in Germany (2018).<\/p>\n

“Universal [has] committed to not re-acquire the assets or re-sign any artists signed with the relevant entities for a period of ten years.”<\/strong><\/p>\n

European Commission announcement, October 21, 2012<\/span><\/p><\/blockquote>\n

Important: The 2012 UMG\/EMI ruling from the EC took place at a time when the UK<\/strong> remained part of the European Union (something that wouldn’t change until ‘Brexit’ \u2013 i.e. the UK’s official withdrawal from the EU \u2013 was completed in January 2020<\/a>).<\/p>\n

As such, Universal<\/strong> has also been conspicuously quiet when it comes to buying assets in the UK.<\/p>\n

Conversely, during the past decade, Sony Music has acquired significant UK music companies\/assets like Ministry Of Sound<\/strong> (GBP \u00a367m in 2016<\/a>), Simon Cowell’s Syco<\/strong> music assets (2015<\/a>, then 2020<\/a>), distributor Essential Music + Marketing<\/strong> (2016<\/a>), plus UK merch company Probity<\/strong> (2020<\/a>).<\/p>\n

And, of course, last year Sony Music gained competition clearance to acquire Kobalt’s UK-headquartered AWAL<\/strong> and Kobalt Neighbouring Rights<\/strong> in a USD $430 million deal<\/a>.<\/p>\n

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Perhaps the biggest pain point for Universal Music Group<\/strong> from its 10-year EC ban, however, has been the artists.<\/p>\n

Remember that specific list of stars who Universal lost to Warner via the Parlophone Label Group divestment: Kate Bush, Pink Floyd, Blur, Coldplay, David Bowie, David Guetta<\/strong> and more.<\/p>\n

Kate Bush<\/strong>, as we all know, just had Spotify’s biggest hit of summer 2022 in the United States<\/a> \u2013 a hit super-charged by a Netflix<\/strong> sync in May, and owned by her own Noble & Brite UK Ltd. company.<\/p>\n

Universal<\/strong>, under the EC’s post-EMI restrictions, wouldn’t have been allowed to make Kate Bush an offer to acquire that recording (or even sign it on a distribution deal).<\/p>\n

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Another thought: Many have wondered why Universal Music Group has been discounted from the list of names chasing the acquisition of Pink Floyd’s<\/strong> masters over the past six months \u2013 a list that includes<\/a> the likes of Sony Music, Warner Music, and Concord.<\/p>\n

Again, under the EC’s 2012 ruling, with Pink Floyd’s<\/strong> music being distributed by Parlophone in the UK\/Europe, Universal would not legally have been allowed to acquire such an asset until its decade-long, post-EMI freeze-out had expired.<\/p>\n

Another relevant move: David Guetta’s<\/strong> recordings catalog was acquired<\/a> by Warner Music Group for over $100 million<\/strong> last year. The EC rules would have precluded Universal from bidding.<\/p>\n

Likewise, David Bowie’s<\/strong> career-spanning recordings catalog was last year signed<\/a> to Warner Music Group (as distribution and marketing partner) from 2023 onwards.<\/p>\n

At the time, Universal would not have been allowed to do that deal, in Europe at least. (Side-note: Warner acquired<\/a> Bowie’s song catalog in a separate deal.)<\/p>\n

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It’s also intriguing to look at the deals Universal<\/strong> itself<\/em> has done in Europe \u2013 and one in particular.<\/p>\n

Last year, UMG announced a “strategic global alliance”<\/a> with [PIAS]<\/strong>, which runs one of Europe’s most successful and respected independent distribution and services companies.<\/p>\n

The announcement was light on hard detail, although Universal committed to providing [PIAS]<\/strong> with an undisclosed package of funding. Importantly, UMG did so without taking any ownership in [PIAS] \u2013 not even a minority stake.<\/p>\n

As MBW pointed out at the time<\/a>, Universal actually wouldn’t have legally been allowed to do so:<\/p>\n