The European Commission has temporarily paused its competition investigation into Universal Music’s big Downtown Music deal after one or more of the parties involved failed to provide an “important piece of information” that the Commission had requested “within a prescribed deadline”.
In what must be sheer coincidence, the pause was announced the day before Downtown CEO Pieter van Rijn – in a lengthy open letter provided to Universal-aligned trade media – hit out at criticism from the independent sector about the mega-major’s aggressive growth strategy, complaining that there have been “whispering campaigns of misinformation” from “certain corners of the independent industry”.
EU regulators began a more detailed phase two investigation into Universal’s $775 million acquisition of Downtown Music in July, in response to concerns about the impact of the deal on the European music market. That investigation is meant to be completed by 10 Dec, but the clock officially stopped ticking on Tuesday, it’s now been announced.
This means the investigation will likely run into the Christmas break, meaning that Universal’s repeated assertion to investors that it is confident the transaction will complete on the original timeline in the second half of 2025 may not be the case after all.
A spokesperson for the Commission told Reuters earlier today, “The ‘clock’ in merger investigations can be suspended if the parties fail to provide, in a timely fashion, an important piece of information that the Commission has requested from them for its competition assessment within a prescribed deadline”.
It’s not clear what specific information is yet to be received by the regulator. However, the suspension falls under article 11(3) of the EU merger regulations, which relates to the obligations of “persons referred to in Article 3(1)(b), as well as undertakings and associations of undertakings, to provide all necessary information” to the Commission.
Article 3(1)(b) is the part of the EU’s merger regulations that says that a “concentration” – a potentially anti-competitive merger – can occur through “the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings”.
A misinterpretation of this admittedly somewhat complex wording, presumably due to a misunderstanding of the term “associations of undertakings”, has led prominent Universal proxies to imply that in fact it may not be information from Universal, Downtown or an associated company that the EU regulator is waiting for, but rather information from a trade association. An implication seemingly contradicted by the Commission’s quote to Reuters.
Trade bodies representing the independent label sector – including pan-European grouping IMPALA – have strongly welcomed the EU’s investigations into the Downtown deal. When the phase two investigation was launched in July, IMPALA boss Helen Smith said that, while “all sectors need strong big companies as leaders”, there is always “a point when big is too big for the ecosystem”.
There is widespread concern across the indie sector about Universal acquiring Downtown, and with it the FUGA, CD Baby, Songtrust and Curve businesses which together provide vital services to millions of independent artists, songwriters, record labels and music publishers.
This stems, at least in part, from Universal’s exploitation of its market dominance as the world’s biggest record company to put pressure on the main music streaming platforms to revise their business models in a way that benefits big catalogue owners and superstar artists while disadvantaging indie labels and smaller artists.
Should the Downtown deal go ahead, Universal will control even more of the digital music pipeline, and will be licensing an even bigger catalogue into the streaming services, which will mean even more clout when negotiating deals – a matter of particular concern as the deals between streaming platforms and the majors come up for renewal every few years.
The Downtown deal will also give Universal access to a huge amount of independent sector revenue, rights and marketing data, which will provide market intelligence that Universal can exploit, including when competing with independent music companies to sign new talent and acquire catalogue. Meanwhile the data will also help power the marketing machine utilised by the major’s own frontline labels.
Universal’s main rival Sony Music was previously more proactive in buying up distributor and artist services companies. And Sony CEO Rob Stringer recently admitted that the major’s massive data pool – including data from its distribution businesses – has proven very useful as it has had to bid for lucrative music catalogues against investors outside the music industry.
These, and other issues, have been raised by indie labels and their trade bodies ever since the Downtown deal was first announced. The indie sector representatives are pretty clear on what they want from the EU investigation – they want the European Commission to block the deal.
Universal Music hasn’t formally responded in public to those criticisms or concerns, but record industry execs and surrogates connected to the major have pushed back, while also dissing the indie labels’ representatives.
That’s included Kenny Gates, the founder of [PIAS], another indie distributor bought by Universal; JT Myers and Nat Pastor, the bosses of the Virgin Music Group, the Universal division that its technically buying Downtown; and now Downtown CEO van Rijn, who came to the company via its FUGA division and clambered his way up the greasy pole to become CEO of the wider Downtown group of companies.
The narrative from those within the Universal orbit is usually the same: Universal acquiring and therefore investing in Downtown is good for Downtown’s clients and the indie sector more generally; that everyone should trust Universal and a Universal-owned Downtown to do the right thing; and the indie sector trade groups are spreading falsehoods in a bid to scupper the big deal.
In his open letter, van Rijn says there were various offers to buy Downtown, but the company went with the Universal offer because “we were presented with a partner who wanted to invest in Downtown, our team and our clients”.
Post-deal, Downtown clients will have access to “more resources, greater support, more innovative technology, all while not only maintaining, but actually building on, the great service levels, platforms and the flexibility of our current offering”.
He goes on to claim that, in fact, no one should be worried about Universal’s access to data via the deal. “While we recognise that questions around data protection and security are natural in the context of a transaction like this”, he says, “it is worth underlining that Virgin, like Downtown, operates in a culture built on trust”.
And therefore, he reckons, “our clients can expect the same, if not expanded, industry-leading data protection and security they are used to now”. So, basically, “trust us, we’re the good guys!”, rather than providing any meaningful proposals for why Universal, Virgin and Downtown can be trusted to not do what their main competitor says it has been doing for years.
In an apparent attempt to flip round the trust issue, he adds that, “Certain corners of the independent industry, most notably some of the very bodies entrusted to guide it, chose to overlook the clear benefits for their members that this merger offers”. And while “we respect the position and mission” of those trade bodies, van Rijn insists, “the debate must be honest – it must be about facts, not agendas”.
“The whispering campaigns of misinformation that we have seen pervade the public debate, and which seem aimed at undermining our longstanding and trusted client relationships, only serve to undermine the quality and integrity of the discussion”, he then says.
“It’s disappointing to see how quickly some parts of our industry closed the door to rooms we – and others – helped build. Unfortunately, this approach has continued into the campaign that we see today, based on rumour rather than reality”.
In the same way that he avoids any detail on why Universal, Virgin and Downtown should be trusted not to snoop through indies’ data, Van Rijn’s letter doesn’t go into much detail about the supposed “misinformation”.
The earlier memo from Myers and Pastor did respond to some of the alleged “falsehoods”, using the “trust us” line on the data concerns and then getting into a squabble over how music industry market share should be defined.
What’s most interesting is quite why these Universal allied execs feel the need to speak out on the Downtown deal and lay quite so rabidly into the indie sector’s trade groups.
After all, Universal’s lawyers can provide data protection promises and arguments on market share calculations through the formal regulator processes, and the European Commission is unlikely to be swayed by arguments from people who already sold their companies to Universal. Is it an attempt to influence wider public opinion within the music industry? And if so, to what end?
It could be that the execs chipping in are concerned about the impact that the dramas around the Downtown deal might have on their own client bases. That would be a legitimate concern, given that – in the distribution and artist services side of the music industry – you’re only ever as strong as your current client base.
However, reassuring clients doesn’t require openly dissing the trade bodies of which many of those clients are likely to be members. And, of course, if the deal collapses, Downtown may find that it has burnt some fairly important bridges with customers and stakeholders.
Could it be that the executives of Universal, Virgin, Downtown, [PIAS] and others have realised quite how much of a threat to their plans a well organised indie sector poses?
Or perhaps it’s just that the walls are sufficiently thick in the corporate ivory tower occupied by UMG and its allies that senior executives genuinely believe that the majority of the indie sector is on their side except for a few noisy participants within the trade bodies. It’s not, but you know, sometimes you’ve drunk enough of the kool aid to convince yourself that everyone else is wrong.
