Updated: Universal/EMI must sell crown jewels to protect iTunes challengers

Universal Music’s proposed acquisition $1.9 billion of EMI Music has been approved by the European Commission on condition that it sell off a swathe of well-known acts and labels to satisfy concerns over digital music licensing.

Following the EC’s ruling, the US Federal Trade Commission took  voted 5-0 to close its inquiry in the proposal, judging that there were no competition issues.

But the EC said the deal “would have increased Universal’s size in a way that would likely have enabled it to impose higher prices and more onerous licensing terms on digital music providers” and “this could have negatively affected the possibilities for innovative providers to expand or launch new music offerings”.

To overcome the concern, Universal has agreed not to include “most-favoured nation” clauses in its contracts with digital services — stipulations under which it could have demanded it strike equally favourable deals with such services as other labels have.

And it has agreed to divest Parlophone, Sanctuary, several national EMI imprints and many others that are home to Blur, Gorillaz, Pink Floyd, Kylie Minogue and other well-known acts. Full list here.

Explaining the commitments imposed on Universal, the EC said that, even though a large music service like Apple’s, which dominates digital sales, might have been able to front up to price hikes from a newly-enlarged Universal, “there are many other smaller, particularly innovative, music distribution players, such as streaming platforms or mobile operators that offer music together with telephony subscriptions (which) would be particularly vulnerable to a price increase or other types of worsening of licensing terms by Universal“.

Merlin, the so-called “fifth major” group representing indie labels, re-iterated its ongoing opposition to the deal following approval, saying Universal would enhance its market-leading position.

“We now have to face the possibility that the digital market could be dictated and controlled by two super majors (Universal and Sony), which would not be a healthy outcome,” CEO Charles Caldas said (via MusicAlly).

“That said, the concessions Universal has had to make to get this deal through are significant, and must make this a very different deal to the one Universal originally envisioned.”

Some of Merlin’s largest members could be candidates to buy divested Universal imprints.

In contrast to the EC, the FTC said it “did not find sufficient evidence of head-to-head competition to conclude that the combination of Universal and EMI would substantially lessen competition”.

The FTC said Universal’s repertoire was mostly of new artists while EMI’s was older, adding that little competition exists between Universal and EMI in interactive streaming services because such services would require both contracts, and those of all major labels, to be comprehensive.

However, the FTC’s decision noted that the remedies Universal will have to enact to satisfy the EC will also have the effect of mitigation against concentration of ownership in the US.

The EC cleared Sony/Mubadala’s proposed acquisition of EMI’s music publishing business in April.