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Mergers: Commission Opens In-Depth Investigation Into Sony/BMG Recorded Music Joint-Venture
By Mi2N
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The European Commission has decided to open an in-depth investigation into the merger of the global recorded music businesses of Germany's Bertelsmann AG and Japan's Sony Corp. An earlier Commission decision to approve the merger in July 2004 was annulled by the European Court of First Instance (CFI) on 13th July 2006 (see CJE/06/60).

The in-depth inquiry will permit thorough analysis of the complex information required in order for the Commission to ascertain whether or not the merger strengthens or creates a dominant position in these relatively concentrated markets. The opening of an in-depth investigation does not prejudge its final result. The Commission now has four months, until 2nd July 2007, to reach a final decision on whether to approve or veto the merger.

The transaction comprises the creation of the recorded music joint venture Sony-BMG, into which Bertelsmann contributed the worldwide recorded music business of its wholly-owned subsidiary Bertelsmann Media Group ("BMG") with its labels Arista, Jive, Zomba and RCA. Sony contributed its worldwide - with the exception of Japan - recorded music business which had been operated by Sony Music Entertainment and whose labels include Columbia, Epic and Sony Classical.

The Commission initially authorized the creation of the joint venture, Sony-BMG (see IP/04/959), combining the recorded music divisions of Sony and Bertelsmann, finding that the merger did not create or reinforce collective market power (i.e. enhance the ability to impose higher prices) on the part of the music majors (Universal, Sony-BMG, Warner and EMI).

However, in its 13th July 2006 ruling on case T-464/04, the Court of First Instance considered the evidence relied on by the Commission insufficient to explain the decision and annulled it. The Commission is therefore re-assessing the transaction.

The assessment is carried out under the previous Merger Regulation (4064/89), applicable to merger agreements signed before 1 May 2004, applying the test of whether the merger strengthens or creates a dominant or collective dominant market position in the territory of the European Union as it stood before 1 May 2004 (i.e. 15 countries) or a substantial part thereof. The Commission will evaluate the transaction in the light of current market conditions, taking into account developments since 2004, including the growing sales of online music.

The 2004 investigation focused, in particular, on whether the merger would create or strengthen a collective dominant position among the major music recording companies. This will also be an important element of the current extensive market investigation.

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