The European Commission has opened an in-depth investigation to assess whether the proposed creation of a joint venture between three collective rights management organisations (CMOs) in the online licensing of musical works is in line with the EU Merger Regulation. The CMOs contributing to the joint venture are PRS for Music Limited (PRSfM) of the United Kingdom, Föreningen Svenska Tonsättares Internationella Musikbyrå u.p.a. (STIM) of Sweden and Gesellschaft für musikalische Aufführungs- und mechanische Vervielfältigungsrechte (GEMA) of Germany. CMOs manage the copyrights of authors, performers and writers of musical works. They also grant licences on their behalf and redistribute the royalties collected from the exploitation of their copyrights.
The Commission’s preliminary investigation indicated that the combination of the music repertoires currently controlled by each of PRSfM, STIM and GEMA could result in higher prices and worsened commercial conditions for digital service providers (DSPs) in the European Economic Area (EEA). This could lead, ultimately, to higher prices and less choice for European consumers of digital music. DSPs provide online services to final customers, such as music downloading or streaming and to operate on the market they need licences delivered by CMOs. The Commission has concerns that the transaction may reduce competition in the EEA for copyright administration services provided to certain publishers since the proposed transaction would essentially reduce the number of meaningful market players from four to two. The opening of an in-depth inquiry does not prejudge the outcome of the investigation. The Commission has now90 working days, until 29 May 2015, to take a final decision on whether the proposed transaction would significantly impede effective competition in the EEA.
The Commission's investigation revealed that the proposed transaction may raise competition concerns in the EEA market for online music licensing. This is because the joint venture would grant licences valid in several countries (multi-national licences) for the online music rights held by its parent companies or by other CMOs or right holders that would mandate the joint venture with the licensing of their rights. In order to lawfully operate in the market for online music services, DSPs need to secure a licence from each of the CMOs managing the relevant copyrights in the music works that such DSPs would like to offer on the market. Such licences can cover one or several countries. After the transaction, PRSfM, STIM and GEMA would not offer multi-national licences for their repertoire individually and DSPs could obtain those only from the joint venture. The Commission's investigation indicated that the aggregation of the repertoires of PRSfM, STIM and GEMA, currently among the most important in the EEA, could lead to increased bargaining power for the joint venture. This may enable the joint venture to charge higher prices and to grant worse commercial terms and conditions to DSPs. This, in turn, could lead to higher prices, less choice and less innovation for digital music end users in the EU.
Moreover, the Commission's investigation raised competition concerns as regards the EEA-wide market for copyright administration services to so-called "option 3 publishers". These are the major publishers which, following a Commission recommendation on the cross-border collective management of copyright for online use, have withdrawn the mechanical rights related to their Anglo-American repertoire from the CMO system and have started to license these rights directly, relying on CMOs only for administrative services. Indeed, the transaction would reduce the number of entities capable of credibly bidding for option 3 mandates from four to two. In this market, CMOs provide services related to the administration of the licences granted by option 3 publishers. These services comprise among others the collection and processing of revenues from DSPs, or infrastructure and IT services. As a result of the transaction, the parties would concentrate their activities within the joint venture, thus no longer competing separately. This could have a negative impact on the quality and commercial terms of those services.
The Commission will now open an in-depth investigation to determine whether its competition concerns are confirmed.
The transaction was notified to the Commission on 28 November 2014, following a referral request by the parties under Article 4(5) of the Merger Regulation.
Companies and products
PRSfM, STIM and GEMA are respectively the British, Swedish and German CMOs for copyrights of authors in musical works. CMOs' activities comprise the granting of licences to users of musical works, the monitoring and detection of these licences' unauthorised use, as well as the collection and distribution to right holders of revenue derived from the exploitation of those rights.
The joint venture would negotiate and grant multi-national licences of mechanical and performing rights in musical works for online and mobile exploitation to DSPs active in several Member States. In addition, the joint venture would provide back- and middle-office administration services to option 3 publishers and other CMOs.
Merger control rules and procedures
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).
In addition to the current transaction, there are five other on-going phase II merger investigations. The first is the planned acquisition of a controlling stake in De Vijver Media by Liberty Global, with a decision deadline on 5 March 2015 (see IP/14/1029). The second one relates to Zimmer's planned acquisition of Biomet, with a decision deadline currently suspended (see IP/14/1091). The third one is the proposed acquisition of the Greek gas transmission system operator DESFA by the State Oil Company of Azerbaijan Republic (SOCAR), with a decision deadline of 22 April 2015 (see IP/14/1442). The fourth is the proposed acquisition of Spanish telecommunications operator Jazztel by rival Orange, with a decision deadline of 24 April 2015 (see IP/14/2367). The fifth concerns the proposed joint venture between world's leading coffee manufacturers Douwe Egberts Master Blenders (DEMB) and Mondelēz, with a decision deadline of 6 May 2015 (see IP/14/2682).