|EUROPEAN COMMISSION |

In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC) No 139/2004 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus […]. Where possible the information omitted has been replaced by ranges of figures or a general description. Brussels, 19/04/2012

C(2012) 2745

PUBLIC VERSION

MERGER PROCEDURE

To the notifying parties:

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Dear Sir/Madam,

Subject: Case No. COMP/M.6459– Sony/ Mubadala/ EMI Music Publishing

Commission decision pursuant to Article 6(1)(b) in conjunction with Article 6(2) of Council Regulation No 139/2004 [1]

1. On 27 February 2012, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 by which Sony Corporation of America and Mubadala Development Company PJSC acquire within the meaning of Article 3(1)(b) of the Council Regulation joint control of the whole of the undertaking EMI Music Publishing, which currently forms part of the EMI Group, by way of purchase of shares and assets. Sony and Mubadala are collectively referred to as “the Parties”. EMI Music Publishing will be administered by Sony/ATV.

I. THE PARTIES

2. Sony Corporation of America ("Sony") is the US subsidiary of Sony Corporation, headquarted in Tokyo, Japan. Sony, directly and through its subsidiaries, is active globally in various businesses, including electronics products (i.e. audio, video, televisions, digital cameras, personal computers and tablets), entertainment services (e.g. motion pictures, TV programming, recorded music, music publishing), financial services and a variety of other businesses.

3. Mubadala Development Company PJSC ("Mubadala") is an Abu Dhabi public joint stock company focused on investment and development which is wholly owned by the Government of the Emirate of Abu Dhabi in the United Arab Emirates. Mubadala is active in investing in a wide range of strategic sectors, including energy, utilities, real estate, basic industries and services.

4. EMI Music Publishing ("EMI MP") is the EMI Group's music publishing business.

5. Sony/ATV is not a party to the transaction but will administer the EMI MP catalogue. Sony/ATV is a music publishing company established in 1995 when Sony Music Publishing was transferred to a 50/50 joint venture with the singer-songwriter Michael Jackson, together with certain music catalogues owned by Michael Jackson. According to the Parties, Sony/ATV is jointly controlled within the meaning of the Merger Regulation by Sony and the Michael Jackson Estate and encompasses all music publishing activities of its parents.

II. THE CONCENTRATION

6. According to the transaction documents submitted by the Parties, the proposed concentration would be structured as follows. A special purpose vehicle, DH Publishing LP ("DH Publishing"), would acquire EMI MP from Citigroup. DH Publishing would be owned by two consortium companies. The first consortium company is Nile Acquisition LLC ("Sony Sub"). Sony Sub is owned by Sony ([…] shareholding) and the Michael Jackson Estate ([…] shareholding). The second consortium company is Nile Acquisition Holding Company Limited ("Mubadala Sub"). Mubadala Sub would be owned by Mubadala ([…] shareholding), Jynwel ([…]), GSO ([…]) and EMI West ([…]).

7. Mubadala Sub would have a ca. […] interest in DH Publishing and Sony Sub would hold a ca […] interest in DH Publishing.

Sony's influence over EMI MP

8. Sony would hold a […] interest in Sony Sub and would therefore be able to exercise control over Sony Sub, which in turn would own […] of the shares in DH Publishing. Although Sony Sub would only be a minority shareholder in DH Publishing, a number of important actions would require its approval. This would include the adoption of DH Publishing's budget and the annual business plan, which would be subject to unanimous approval of the shareholders in DH Publishing. The same would apply to investments in excess of USD […]. Sony would also appoint 4 out of 12 members of DH Publishing's board of directors.

9. Furthermore, Sony/ATV, which is jointly controlled by Sony, would be appointed to act as the exclusive administrator of the EMI MP catalogue. As such, it would be Sony/ATV that would decide on the day-to-day licensing of the EMI MP catalogue. Ultimately, however, Sony would be allowed to exercise its rights with regard to the EMI MP catalogue unilaterally, without recourse to the Michael Jackson Estate.

Mubadala's influence over EMI MP

10. Mubadala would own the majority ([…]) of the shares in Mubadala Sub, which in turn would own […] of the shares in DH Publishing. Mubadala would also have the right to appoint a majority (4 out of 7) of the board of directors of Mubadala Sub. However, according to a governance agreement among Mubadala Sub's shareholders, a majority of […] of the equity of Mubadala Sub would be required in order for the latter to approve the adoption of DH Publishing's budget and annual business plan or approve capital expenditures above USD […]. Therefore, Mubadala's agreement would always be necessary subject to forging alliances with either Jynwell or GSO in order to approve these measures.

11. […]. In addition there are various arrangements, […], that would strengthen its de facto influence over decisions taken in relation to the EMI MP repertoire.

Joint control by Sony and Mubadala over EMI MP

12. Control is acquired if an undertaking can exercise decisive influence over the strategic commercial behaviour of another undertaking. [2] A minority shareholder may be deemed to have control on a negative basis if it is able to block the adoption of strategic decisions in an undertaking without having the power, on its own, to impose such decisions. [3] Since this shareholder can produce a deadlock situation, the shareholder acquires decisive influence within the meaning of Article 3 (2) and therefore control within the meaning of the Merger Regulation. [4]

13. In the event of a minority shareholding, control may occur in situations where specific rights attached to the shareholding, such as additional rights enabling the minority shareholder to determine the strategic commercial behaviour of the undertaking to be acquired or majority requirements for strategic decision, in fact confer a veto right upon the minority shareholder. [5] Veto rights that confer joint control typically include decisions on issues such as the budget, the business plan, major investments or the appointment of senior management. [6] By contrast, veto rights that are normally accorded to minority shareholders in order to protect their financial interests as investors are usually insufficient to establish control. [7]

14. In the present case, both Sony and Mubadala would enjoy rights that enable them to block strategic decisions that determine the strategic commercial behaviour of DH Publishing and hence EMI MP. Sony, as an indirect minority shareholder in DH Publishing would be granted a veto right with regard to the adoption of DH Publishing's budget, the company's annual business plan and investments in excess of USD […]. At the same time, Sony/ATV, which is jointly controlled by Sony, would act as the administrator of the EMI MP catalogue.

15. Mubadala would enjoy a veto right that is identical to Sony's and in addition have the right to block any important investment proposed by Sony/ATV.

16. The Commission finds that in addition Mubadala would enjoy sole control over Mubadala Sub. The Commission reaches this conclusion in view of Mubadala's right to determine the majority of the members of the board and its ability to forge changing alliances either with GSO or Jynwell, depending on its interest. In contrast to the situation of joint negative control, sole negative control can exist if no other shareholders enjoy the same level of influence as the shareholder that is always needed to forge a majority. The shareholder enjoying negative sole control does not necessarily have to cooperate with specific other shareholders in determining the strategic behaviour of the controlled undertaking. This would be the case for Mubadala with regard to Mubadala Sub.

17. In light of the above, the Commission concludes that the proposed concentration would confer upon Sony and Mubadala joint control over DH Publishing and hence EMI MP.

III. EU DIMENSION

18. The undertakings concerned have a combined aggregate worldwide turnover of more than EUR 5 000 million (Sony: EUR 61 779 million; Mubadala: [> EUR 5000 million]; EMI MP: [>EUR 500 million]). The aggregate EU-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million (Sony: [>EUR 10000 million]; Mubadala: [>EUR 4000 million]; EMI MP: [>EUR 200 million]). The proposed transaction therefore has an EU dimension.

IV. RELEVANT MARKETS

1. Background

19. Music publishers are active on two market levels. Upstream, they are active in the supply of publishing services to authors. These services include signing authors and providing them with financial, marketing and career support. As a counterpart to these services, authors transfer the rights in their musical work to the publisher or grant that publisher an economic interest in the musical work by providing the publishers the right to obtain a certain portion of the royalties collected. Downstream, music publishers are active in the exploitation of works of authors under contract or for a certain period of time following the expiration of the contract (so-called retention period). On that level, they either directly grant licences for use of the musical works to right users against the payment of royalties, or receive a part of the royalties collected by collecting societies (for licences issued by the societies). These two activities relate to separate markets as each one implies a distinct supply and demand relationship (between publishers and final users downstream, and between authors and publishers upstream).

20. In this decision, the Commission first describes the relevant markets for the exploitation of music publishing rights. The Commission then assesses the relevant market for the supply of publishing services to authors.

2. Relevant product markets

2.1. Markets for the exploitation of music publishing rights

No single market for the exploitation of music publishing rights

21. The Parties claim that there should be a single market encompassing the exploitation of all types of music publishing rights. This would be appropriate as authors contract with music publishers for the exploitation of all their music publishing rights.

22. The Commission has previously defined separate product markets for the exploitation of different categories of music publishing rights. [8] These categories of rights were:

(i) Mechanical rights: the right to reproduce a work in a sound recording (e.g. CDs);

(ii) Performance rights: the right for commercial users such as broadcasters (TV or radio stations), concert halls, theatres, night clubs, restaurants to divulge a work to the public;

(iii) Synchronisation rights: the right for commercial users such as advertising agencies or film companies to synchronise music with a visual image;

(iv) Print rights: the right to reproduce a work in sheet music; and

(v) Online rights: a combination of mechanical and performance rights for online applications, such as music downloading and/or streaming services.

23. The overwhelming majority of the respondents to the market investigation (both competitors and customers) confirmed that it is still appropriate to define markets in this manner. They indicate that from a demand-side perspective there is no substitutability between different categories of rights as different users require different sets of music publishing rights. [9]

24. From a supply-side perspective, there are also important differences between the various music publishing rights.

25. The main differences relate to the role of collecting societies in the licensing of various rights. The licensing of mechanical and performance rights for offline use is generally carried out by collecting societies on behalf of publishers. By contrast, synchronization and print rights are generally licensed and administered directly by the publishers without the involvement of collecting societies. Online rights are subject to a hybrid solution whereby some repertoire may be licensed directly by publishers or collecting societies/rights management entities acting as their agents and other repertoire is licensed by collecting societies without any influence from the publishers. Collecting societies are legally bound to grant licences in a non-discriminatory manner to different groups of users. Publishers are not bound by the same regulations. The market investigation has shown that accordingly, there are differences in the way that royalties are established and paid and that licensing conditions differ per right category.

26. On the basis of the above, and in particular in view of the different user requirements for each category of publishing rights and the different role of collecting societies, the Commission concludes for the purpose of the present decision that the market for music publishing rights should be subdivided according to the categories of rights into (i) mechanical rights, (ii) performance rights, (iii) synchronisation rights, (iv) print rights and (v) online rights.

Segmentation of online rights

27. In view of the fact that the impact of the proposed transaction concentrates mainly on the market for online rights, the Commission further considers whether this market should further be subdivided according to the type of repertoire, retail model, genre and device.

Segmentation according to the type of repertoire: Anglo-American v. Continental European repertoire

28. The Parties argue that it would not be justified to subdivide the market for the exploitation of online rights further according to Anglo-American [10] repertoire and Continental European [11] repertoire. According to the Parties both demand-side and supply-side considerations back this statement.

29. The Parties are of the view that from a demand-side perspective there is substitutability between Anglo-American and Continental European repertoire and the origin or residence of an author does not represent a criterion for consumer choice. Moreover, the Parties consider that, from a supply-side perspective, all large publishers seek to develop a balanced repertoire comprising both Anglo-American and Continental European repertoire. The Parties further consider that co-authorship among Anglo-American authors and Continental European authors blurs any possible distinction for market definition purposes, as those musical works subject to co-authorship will qualify at the same time as part of both repertoires.

30. The market investigation in the present case did not confirm the need to subdivide the markets for the exploitation of online rights between rights over Anglo-American and rights over Continental European repertoire. [12] The vast majority of online customers consider that from a demand-side perspective a distinction is not appropriate as online platforms need full access to musical works, irrespective of whether they belong to Anglo-American and/or Continental European repertoire. Furthermore, licences obtained through the traditional collecting society system do not differentiate between Anglo-American and Continental European repertoire.

31. Supply conditions for the different sets of repertoire, however, can be different in particular in respect of EEA-wide or multi-territory licences. As explained further in paragraphs 77 to 78 below, due to the legal framework of ownership and transferability of rights, rights for Continental European repertoire remain with collecting societies, which are bound by regulation to grant licences in a non-discriminatory manner across user groups.

32. By contrast, all major music publishers have withdrawn their online mechanical rights for Anglo-American repertoire from collecting societies and assigned their administration to selected collecting societies or rights management entities acting as agents that are not bound by non-discrimination obligations. Some publishers have then re-aggregated their Anglo-American mechanical online rights to the traditional collecting society system in the sense that those societies are able to grant national licences to that Anglo-American repertoire. [13]

33. Important online customers see a trend by which some music publishers seek to increase rates for this repertoire, whereas rates for Continental European repertoire that is still licensed by collecting societies remained the same. [14] This confirms that at least for Anglo-American repertoire, licensing conditions for online rights have evolved differently from that of Continental European repertoire.

34. For the purposes of this decision, and taking into account the demand side considerations (as explained in paragraph 30 above) and the fact that the vast majority of both competitors and online customers did not consider that the market for the exploitation of online rights should be further segmented between Anglo-American and Continental European repertoire, the Commission assesses the effect of the proposed concentration on the market for the overall online rights. [15] Nevertheless, considering that music publishers can only have market power in respect of the exploitation of Anglo-American rights, the Commission takes into account the Parties' position in relation to these rights in the competitive assessment of the overall online rights market.

Segmentation according to the retail model

35. The Parties argue that it would not be justified to subdivide a market for the exploitation of online rights further in relation to the type of retail model and more specifically between streaming and download. The Parties refer that, from a demand-side perspective, retail models compete with one another so that different online music services offer substitutable forms of consumed music and compete for consumer choice. Moreover, in the view of the Parties, the evolving nature of online retail models increasingly blurs the differences between download and streaming services. The Parties further argue that, from a supply-side perspective, the same type of rights and the same repertoire are involved.

36. The market investigation was inconclusive as regards the need to segment online rights on the basis of retail models, such as download or streaming. Although, download and streaming services each require a licence combining both mechanical and performance rights, licensing terms and conditions appear to regularly differ for the two types of platforms.

37. However, the question of whether the market for online rights should be further subdivided according to the retail model into download and streaming can be left open for the purpose of the present decision as the competitive assessment would remain the same irrespective of the conclusion on this point.

Segmentation according to genres

38. The Parties argue that a market for the exploitation of online rights should not be further subdivided according to different genres (chart hits, classical music etc.). The Parties refer that from a demand side perspective users generally licence rights covering a wide variety of genres. From a supply-side perspective, music publishers commercialise rights for a broad range of genres and licences and prices cover all repertoire.

39. The market investigation confirms that it is not appropriate to further divide the markets for online rights according to genres. Respondents indicated that, although there is a limited number of publishers specialized in one specific genre, music publishers are generally active across genres and do not specialise in specific segments. [16]

40. As a result, the effects of the proposed concentration are analysed on the overall market for the exploitation of online rights including all genres.

Segmentation according to access devices

41. The Parties are of the view that a segmentation of the market based on access devices into mobile and other online uses is not justified in the light of demand-side considerations. In fact, the Parties consider that the convergence between different access devices has increasingly blurred the borderline between online and mobile applications and music content is easily downloaded or streamed through a variety of different devices.

42. The market investigation, confirms that it is not appropriate to further divide the markets for online rights according to access devices. In particular, respondents indicated that such distinction is not appropriate in the light of the convergence between access devices as well as the identity of licensed rights. [17]

43. As a result, the effects of the proposed concentration are analysed on the overall market for the exploitation of online rights including all types of access devices.

Market for synchronisation rights and production music

44. The Parties further argue that there is a single market encompassing the exploitation of synchronisation rights for all musical works, including production music (i.e. music specifically commissioned by publishers for synchronisation purposes and not for resale). In their view, a segmentation of the market is not appropriate as from a demand-side perspective, production music forms part of a range of options available for synchronisation purposes. In the view of the Parties, users can have a strong preference for a particular song or can be indifferent and choose an existing recording of a musical work, a musical work without an existing recording, production music, or can commission a new piece of work.

45. The Parties further argue that from a supply-side perspective there is generally no difference in the licensing of synchronisation rights for other musical works and production music as licences are typically negotiated on a bilateral basis between publisher and licensee.

46. One market participant argued that the market for the licensing of production music could be considered as a separate market from the overall market for the licensing of synchronisation rights. According to this market participant demand-side and supply-side considerations back this statement.

47. In the view of this market participant, from a demand-side perspective, production music is generally used as background music for media sources. From a supply-side perspective, the market participant argues that production music is subject to a different exploitation system than other musical works licensed for synchronisation purposes. Music publishers often operate production music activity through dedicated entities. In addition, music publishers own both recording and publishing rights to production music and therefore, the licensing of production music rights does not necessarily take place through collecting societies.

48. The market investigation was inconclusive as concerns the need to define separate markets for the exploitation of synchronisation rights and production music. [18]

49. The question of whether the market for synchronisation music includes production music can be left open for the purpose of the present decision as the competitive assessment would remain the same irrespective of the conclusion on this point.

Conclusion on product markets for exploitation of music publishing rights

50. For the reasons explained above, the Commission considers that the market should be subdivided along the lines of different categories of rights since the economic conditions seem to differ mostly between these overall categories.

51. For the purposes of this decision, the market for the exploitation of music publishing rights for online use should not be further subdivided between different types of repertoire, access devices or genres. As regards a further subdivision by retail model (i.e. downloading v streaming), it can be left open whether these segments constitute separate product markets. As regards the market for the exploitation of synchronisation rights, it can also be left open whether production music constitutes a separate product market.

2.2. The market for publishing services to authors

52. The Parties agree with the precedent of the Commission in Universal/BMG Music Publishing [19] on the relevant product market definition for publishing services to authors whereby a separate market for music publishing services to authors was defined.

53. According to the precedent of the Commission, the market for publishing services to authors refers to the market on which publishers provide authors with various services such as the payment of advances [20] and the management of the copyrights in their works. Apart from this, publishers provide services to authors that serve the promotion and further development of the author. This includes the provision of management services, as well as the promotion and further career development of the author (the latter comprising for instance the finding of producers, writing partners or creative guidance). In return for these services the authors transfer the rights connected to their own works to the publishers for exploitation, or give the publisher an economic interest in their works in the form of a portion of the royalties received. While from the perspective of publishers this market level constitutes a market for the acquisition of rights, from the viewpoint of authors it constitutes a market for publishing services. Authors should not only be considered as suppliers of songs, but also as customers receiving various publishing services. For new authors, in particular, a publisher usually provides strategic support to start a career as it gives to the author initial financial support and access to its established network of artists and record companies. More generally the administrative support given by publishers allows authors to focus on creative activities.

54. The market investigation confirmed the relevant product market definition as defined in Universal/BMG Music Publishing. [21] In addition, the market investigation confirmed that authors do not seem to use different publishers for the different categories of rights. [22]

55. Therefore, the Commission considers that, unlike for the downstream market for the exploitation of music publishing rights, no further segmentation of this market appears to be appropriate. For the purposes of this decision therefore, the relevant product market will be that of music publishing services to authors.

56. Finally, only a minority of authors does not rely on publishers' services and self-publish their works. Self-publishing can notably be viable for established authors who do not need any publishing services and who can rely on collecting societies to collect the relevant royalties on behalf of the author. The market investigation confirmed that many authors would not envisage working without a publisher. [23] In any event, given that competition takes place between companies providing publishing services to those authors who wish to benefit from such services, self-publishing is not considered as forming part of the market for publishing services to authors.

3. Relevant geographic markets

3.1. Markets for the exploitation of music publishing rights

57. The Commission previously defined national markets for the exploitation of the various categories of music publishing rights. The Parties recognise that there has been no material change for the licensing of music publishing rights since the adoption of the Universal/BMG Music Publishing decision in 2007. The market investigation in this case also confirmed that, with the possible exception of the market for online rights, the markets for the various publishing rights are national in scope.

58. The Parties argue that the market for the exploitation of online rights is EEA-wide. Already in Universal/BMG Music Publishing, the Commission recognised that online customers at that time had increased possibilities to obtain EEA-wide licences. The Commission therefore recognised that the market could develop into a multi-territorial or even EEA-wide market in the future. The Parties confirm this on-going evolution and submit that a large number of online music platforms obtain licences that have a broader than national scope. In particular, the Parties point to the fact that the large majority of revenues from online licences negotiated outside the traditional collecting society system are accounted for by licences that are multi-territorial or EEA-wide in scope.

59. The market investigation revealed that at present, the market for online rights is moving towards an EEA-wide market, although the existence of such a market has not been confirmed. [24] Online customers increasingly obtain EEA-wide licences for online rights to Anglo-American repertoire. All major music publishers and some independent music publishers have appointed collecting societies or rights management entities acting as agents to offer EEA-wide or multi-territory licences (but it remains possible to obtain national licences).

60. However, despite the wider territorial scope of these licences, evidence from customers shows that royalty rates, minimum rates and other usage terms tend to vary per EEA-country. EEA-wide licences often use so-called country of destination tariffs (which may vary country-by-country with higher rates applied to some of the major territories) or so-called "blended rates" (i.e. one or more average rates calculated for the EEA or for groups of countries within the EEA). In addition, some large platforms such as […], as well as the majority of smaller platforms, still obtain a collection of national licences rather than an EEA-wide or multi-territory licence. Some of these platforms launch their online services on the basis of a national licence in one EEA country and then expand their operations on the basis of licences for other EEA countries. Even if licences, in particular those relating to Anglo-American repertoire, may be issued on an EEA-wide or multi-territory basis, any online customer is likely to assess the relevance of the licensed repertoire in relation to the different countries in which it is aiming to operate.

61. For the purposes of the present decision, the precise geographic market definition can be left open since serious doubts arise on an EEA-wide level as a result of the competition concerns arising at national level.

3.2. The markets for publishing services to authors

62. The Parties agree with the precedent of the Commission in Universal/BMG Music Publishing [25] on the relevant geographic market definition for publishing services to authors. In that case the Commission considered that the markets for publishing services to authors are mainly national but ultimately left open the exact geographic market definition.

63. The market investigation indicated that although the geographic scope of the market for publishing services to authors could be broader than national, authors still tend to turn to publishers with a local presence and tend to be members of the national collecting societies. [26]

64. The exact geographic scope may, however, be left open since no serious doubts arise regardless of the geographic scope of the relevant market.

V. COMPETITIVE ASSESSMENT

1. Background

65. In 2010, the Parties estimated revenues in the overall music publishing market to amount to EUR [1000-1,500] million. The structure of the market is presented in the following table:

Revenue based market shares for overall music publishing rights (2010)

All rights |Sony/ATV |EMI MP |Merged |Universal |Warner/ Chappell |BMGRM |Imagem |Kobalt |Peer-music |Others |

|% |% |% |% |% |% |% |% |% |% |

Austria |[5-10] |[10-20] |[10-20] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[50-60] |

Belgium |[10-20] |[20-30] |[30-40] |[20-30] |[10-20] |[5-10] |[0-5] |[0-5] |[0-5] |[10-20] |

Bulgaria |[10-20] |[0-5] |[10-20] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

Czech Republic |[10-20] |[10-20] |[20-30] |[30-40] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[10-20] |

Denmark |[5-10] |[10-20] |[20-30] |[30-40] |[10-20] |[0-5]1 |[0-5] |[0-5] |[0-5] |[20-30] |

Estonia |[10-20] |[10-20] |[30-40] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

Finland |[5-10] |[5-10] |[10-20] |[30-40] |[20-30] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

France |[5-10] |[10-20] |[20-30] |[20-30] |[10-20] |[0-5] |-- |-- |[0-5] |[30-40] |

Germany |[10-20] |[10-20] |[20-30] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[40-50] |

Greece |[10-20] |[10-20] |[30-40] |[20-30] |[20-30] |-- |-- |[0-5] |[0-5] |[20-30] |

Hungary |[10-20] |[20-30] |[30-40] |[10-20] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[10-20] |

Ireland |[10-20] |[10-20] |[20-30] |[20-30] |[10-20] |[5-10] |[5-10] |[0-5] |[0-5] |[20-30] |

Italy |[5-10] |[10-20] |[10-20] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[50-60] |

Latvia |[10-20] |[10-20] |[20-30] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

Lithuania |[0-5] |[0-5] |[0-5] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[40-50] |

Luxembourg |[10-20] |[5-10] |[10-20] |[30-40] |[10-20] |[0-5] |-- |-- |-- |[30-40] |

Netherlands |[5-10] |[10-20] |[20-30] |[20-30] |[10-20] |[5-10] |[5-10] |[0-5] |[0-5] |[20-30] |

Norway |[5-10] |[5-10] |[10-20] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

Poland |[20-30] |[10-20] |[30-40] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

Portugal |[5-10] |[10-20] |[20-30] |[20-30] |[10-20] |-- |-- |-- |-- |[30-40] |

Romania |[10-20] |[20-30] |[40-50] |[10-20] |[5-10] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

Slovakia |[10-20] |[0-5] |[10-20] |[30-40] |[20-30] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

Slovenia |[10-20] |[0-5] |[10-20] |[20-30] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[20-30] |

Spain |[5-10] |[10-20] |[20-30] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

Sweden |[10-20] |[10-20] |[30-40] |[20-30] |[10-20] |[5-10] |[0-5]1 |[0-5] |[0-5] |[10-20] |

UK |[10-20] |[20-30] |[30-40] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[10-20] |

EEA Total |[5-10] |[10-20] |[20-30] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

Source: Sony/ATV estimates |

66. Following the merger the four major music publishers - Universal Music Publishing ("Universal"), EMI MP, Warner/Chappell and Sony/ATV - will be reduced to three. The three majors would jointly generate more than 60% of overall publishing revenues in the EEA and in most affected Member States.

67. According to the above estimates, the Parties' combined share of overall music publishing revenues exceeds 40% only in Romania ([40-50]%). The Parties' combined share of such revenues ranges between 30-40% in seven countries (Belgium, Estonia, Greece, Hungary, Poland, Sweden and the UK). On an EEA-wide level the Parties estimate their combined share of overall music publishing revenues to be in the region of 25%, closely followed by Universal ([20-30]%).

68. However, other data sources indicate a higher share of publishing revenues for the Parties. First, Sony/ATV's internal documents clearly show that Sony/ATV expects the combined share in worldwide revenues to be [30-40]% post-merger, with Universal's global share of such revenues estimated at [20-30]% and Warner/Chappell's at [10-20]%. [27]

69. Second, in order to get a more reliable sense of the Parties' future approximate overall share of publishing revenues, the Commission requested the four major publishers to provide their EEA-wide publishing revenues for 2010. The Commission used these data to estimate the relative size of each major music publisher. The Commission also estimated the shares of overall publishing revenues of the four major publishers on an EEA-wide level assuming that the majors hold 60% or 70% of such revenues. [28]

70. On the basis of the overall information received during the market investigation, the Commission considers that on an EEA-wide level the Parties' combined share of overall music publishing revenues is likely to range between 28% and 33%.

2. Markets for mechanical and performance publishing rights for offline use

2.1. Market characteristics

71. Mechanical rights for traditional offline use concern the reproduction of a work on a sound recording (for example a CD or digital track). Performance rights for traditional offline use concern the right for commercial users such as broadcasters (TV or radio stations), concert halls, theatres, night clubs or restaurants to divulge a work to the public.

72. At EEA-level, the Parties estimate the total revenues in the market for mechanical rights for offline use at EUR […] ([20-30]% of the EEA overall music publishing market) and in the market for offline performance rights at EUR […] ([50-60]% of the EEA overall music publishing market). The Parties have provided market shares based on estimates of revenues which are summarized in the following tables: [29] [30]

Revenue based market shares for mechanical rights for offline use (2010)

Mechanical |Sony/ATV |EMI MP |Merged |Universal |Warner/ Chappell |BMGRM |Imagem |Kobalt |Peer-music |Others |

|% |% |% |% |% |% |% |% |% |% |

Austria |[5-10] |[5-10] |[10-20] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[50-60] |

Belgium |[10-20] |[10-20] |[20-30] |[20-30] |[10-20] |[5-10] |[0-5] |[0-5] |-- |[20-30] |

Bulgaria |-- |-- |-- |-- |-- |-- |-- |-- |-- |-- |

Czech Republic |[10-20] |[5-10] |[20-30] |[30-40] |[10-20] |-- |[0-5] |[0-5] |[0-5] |[20-30] |

Denmark |[5-10] |[10-20] |[20-30] |[30-40] |[20-30] |[0-5] |[0-5] |[0-5] |[0-5] |[10-20] |

Estonia |[10-20] |[10-20] |[30-40] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[10-20] |

Finland |[5-10] |[10-20] |[10-20] |[30-40] |[20-30] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

France |[5-10] |[10-20] |[20-30] |[20-30] |[10-20] |[0-5] |-- |-- |[0-5] |[30-40] |

Germany |[10-20] |[10-20] |[20-30] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[40-50] |

Greece |[10-20] |[10-20] |[20-30] |[20-30] |[20-30] |-- |-- |[0-5] |[0-5] |[20-30] |

Hungary |[10-20] |[20-30] |[30-40] |[10-20] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[5-10] |

Ireland |[10-20] |[5-10] |[10-20] |[20-30] |[10-20] |[5-10] |[5-10] |[0-5] |[0-5] |[30-40] |

Italy |[5-10] |[10-20] |[10-20] |[10-20] |[10-20] |[0-5] |-- |-- |[0-5] |[50-60] |

Latvia |[10-20] |[10-20] |[20-30] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

Lithuania |[0-5] |[10-20] |[10-20] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

Luxembourg |[5-10] |[70-80] |[70-80] |[10-20] |[5-10] |-- |-- |-- |-- |-- |

Netherlands |[10-20] |[10-20] |[20-30] |[20-30] |[10-20] |[5-10] |[5-10] |[0-5] |[0-5] |[20-30] |

Norway |[5-10] |[10-20] |[20-30] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

Poland |[20-30] |[20-30] |[40-50] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[10-20] |

Portugal |[5-10] |[10-20] |[20-30] |[20-30] |[10-20] |-- |-- |-- |-- |[30-40] |

Romania |[10-20] |[10-20] |[20-30] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

Slovakia |[10-20] |[0-5] |[10-20] |[30-40] |[20-30] |-- |[0-5] |[0-5] |[0-5] |[20-30] |

Slovenia |[10-20] |[10-20] |[20-30] |[20-30] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[10-20] |

Spain |[5-10] |[20-30] |[20-30] |[20-30] |[10-20] |[0-5] |-- |[0-5] |[0-5] |[20-30] |

Sweden |[10-20] |[20-30] |[40-50] |[20-30] |[10-20] |[5-10] |[0-5] |[0-5] |[0-5] |-- |

UK |[0-5] |[20-30] |[30-40] |[20-30] |[10-20] |[5-10] |[5-10] |[0-5] |[0-5] |[20-30] |

EEA Total |[5-10] |[10-20] |[20-30] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

Source: Sony/ATV estimates |

Revenue based market shares for performance rights for offline use (2010)

Performance |Sony/ATV |EMI MP |Merged |Universal |Warner/ Chappell |BMGRM |Imagem |Kobalt |Peer-music |Others |

|% |% |% |% |% |% |% |% |% |% |

Austria |[5-10] |[10-20] |[20-30] |[5-10] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[40-50] |

Belgium |[10-20] |[20-30] |[30-40] |[20-30] |[10-20] |[5-10] |[0-5] |[0-5] |[0-5] |[10-20] |

Bulgaria |[10-20] |[0-5] |[10-20] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

Czech Republic |[10-20] |[20-30] |[30-40] |[30-40] |[10-20] |-- |[0-5] |[0-5] |-- |[10-20] |

Denmark |[5-10] |[10-20] |[20-30] |[30-40] |[20-30] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

Estonia |[10-20] |[20-30] |[30-40] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[10-20] |

Finland |[5-10] |[5-10] |[10-20] |[30-40] |[20-30] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

France |[5-10] |[10-20] |[20-30] |[20-30] |[10-20] |[0-5] |-- |-- |[0-5] |[30-40] |

Germany |[10-20] |[10-20] |[20-30] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[40-50] |

Greece |[10-20] |[20-30] |[30-40] |[20-30] |[20-30] |-- |-- |[0-5] |[0-5] |[10-20] |

Hungary |[10-20] |[20-30] |[30-40] |[10-20] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[10-20] |

Ireland |[10-20] |[10-20] |[20-30] |[20-30] |[10-20] |[5-10] |[5-10] |[0-5] |[0-5] |[20-30] |

Italy |[5-10] |[5-10] |[10-20] |[10-20] |[10-20] |[0-5] |-- |-- |[0-5] |[50-60] |

Latvia |[10-20] |[20-30] |[30-40] |[20-30] |[10-20] |[0-5] |[0-5] |-- |[0-5] |[10-20] |

Lithuania |[0-5] |[0-5] |[0-5] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[40-50] |

Luxembourg |[10-20] |[0-5] |[10-20] |[30-40] |[10-20] |[0-5] |-- |-- |-- |[30-40] |

Netherlands |[5-10] |[10-20] |[20-30] |[20-30] |[10-20] |[5-10] |[5-10] |[0-5] |[0-5] |[20-30] |

Norway |[5-10] |[5-10] |[10-20] |[20-30] |[10-20] |[5-10] |[0-5] |[0-5] |[0-5] |[30-40] |

Poland |[20-30] |[10-20] |[30-40] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

Portugal |[5-10] |[10-20] |[20-30] |[20-30] |[10-20] |-- |-- |-- |-- |[40-50] |

Romania |[10-20] |[20-30] |[40-50] |[5-10] |[5-10] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

Slovakia |[10-20] |[0-5] |[10-20] |[30-40] |[20-30] |-- |[0-5] |[0-5] |[0-5] |[20-30] |

Slovenia |[10-20] |[0-5] |[10-20] |[20-30] |[10-20] |[10-20] |[0-5] |[0-5] |-- |[20-30] |

Spain |[5-10] |[10-20] |[10-20] |[20-30] |[10-20] |[0-5] |-- |[0-5] |[0-5] |[30-40] |

Sweden |[10-20] |[10-20] |[20-30] |[20-30] |[10-20] |[5-10] |[0-5] |[0-5] |[0-5] |[10-20] |

U.K |[10-20] |[20-30] |[30-40] |[20-30] |[10-20] |[5-10] |[5-10] |[0-5] |[0-5] |[10-20] |

EEA Total |[5-10] |[10-20] |[20-30] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

Source: Sony/ATV estimates |

73. According to this information, the horizontally affected market are those for:

a. Mechanical rights in: Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the UK.

b. Performance rights in: Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Netherlands, Poland, Portugal, Romania, Slovakia, Spain, Sweden and the UK

74. The Parties would, post-merger, acquire a leading position in the market of mechanical rights for offline use in three EEA countries, namely Luxemburg ([70-80]%), Poland ([40-50]%), and Sweden ([40-50]%). The Parties' combined market share would exceed 30% in Estonia, Hungary, Luxemburg, Poland and Sweden. In the UK, the combined market share would amount to [30-40]%. The combined market share in the whole of the EEA would account for [20-30]%.

75. Similarly, in relation to performance rights for offline use, the Parties' combined market share in the EEA would account for [20-30]%. They would be in a leading position in Romania ([40-50]%), with the other majors accounting for [5-10]% (Universal) and [5-10]% (Warner/Chappell). Their combined market share would account for more than 30% in three EEA countries - Latvia ([30-40]%), Poland ([30-40]%) and the UK ([30-40]%).

2.2. Role of collecting societies

76. The Parties submit that the licensing of mechanical and performance rights for offline use is carried out by collecting societies who play a central role in administering these rights, granting the respective licences and collecting royalties. According to the Parties, given that collecting societies control the licensing of mechanical and performance rights for offline use (including royalty rates and other licensing terms and conditions), publishers have no ability to independently raise prices post-transaction or to influence other licensing conditions.

77. With respect to mechanical rights it is important to first understand the difference in the way in which these rights flow under the Anglo-American model compared with the Continental European model. Under the latter, authors do not transfer their rights to the publisher. Rather, they register their works with a collecting society directly who then licenses those rights and collects and distributes the royalties owed by licensees. While a publisher may have a contractual right with the author to receive a share of the royalties (as remuneration for the services it provides to the author), it does not own or control the rights themselves. Furthermore, under the Continental European model, the collecting societies guarantee a "writer's share" of royalties to the author. This is a fixed minimum percentage (in many countries 50% and in others 67%) that the author cannot share with a music publisher. The writer's share is paid directly to the author by the collecting society. The rest may be paid to the publisher (or sub-publisher) who will then onward distribute to the author according to the contract the publisher has with the author.

78. Under the Anglo-American model, authors transfer their mechanical rights to publishers (either by assignment or licence), who, in turn, appoints a collecting society to administer these rights. The music publisher is thereby entitled to receive all royalties directly from the collecting society. The publisher will then pay a share to the author – the split having been contractually agreed between the publisher and the author.

79. The Parties submit that the legal differences between these two models have limited practical implications in the licensing of mechanical rights for offline use. In particular, they claim that, from the licensee's perspective, it is irrelevant which administrative model is applicable as, under both models, collecting societies play a central role in licensing and administering mechanical rights, monitoring sales and collecting royalties on behalf of authors and their publishers.

80. With respect to performance rights for offline use, the Parties submit that the system for licensing performance rights is broadly similar for both Continental European and Anglo-American repertoire. In Europe, in both cases, authors transfer their rights directly to their chosen performance rights collecting society. [31] Publishers receive a split of the royalties collected by the collecting society.

81. The Parties submit that collecting societies are responsible for granting licences for both mechanical and performance rights to users on a fair and non–discriminatory basis and that the tariffs charged under these licences are standard. In particular, royalty rates for mechanical rights for offline use are set in accordance with industry wide agreements. For Continental European repertoire, the mechanical rates are defined in the standard agreement between BIEM (the Bureau International des Societes Gérant des Droits d'Enregistrement et de Reproduction Mécanique) and IFPI (the International Federation of the Phonographic Industry). [32] For the UK, the mechanical royalty rate is set by the UK Copyright Tribunal. Licences, therefore, are granted by collecting societies on standard terms, including standard royalty rates to all mechanical and performance rights licensees in each country. Therefore, music publishers are not able to influence users' decisions through price or other contractual terms.

82. Finally, the Parties submit that the publishers are not able to decisively influence the decisions made by collecting societies, due to the limited share of the voting rights granted to them as members of the Boards of collecting societies. Under these rules, the publishers' ability to influence royalty rates is very limited and will not change post-merger.

83. In its decision in Universal/ BMG, the Commission found that music publishers did not control rates and other licensing terms for mechanical and performance rights for offline use since collecting societies were responsible for negotiating the licences and setting all terms and conditions (for mechanical in line with industry-wide agreements). In addition, the Commission found that collecting societies were bound by legal obligations to set royalty rates in a non-discriminatory way, i.e., to charge the same tariff for every author’s work (differing only by category of use) and not to refuse licences to users. [33] Finally, the Commission found that in the traditional system of collecting societies, publishers may influence the pricing decisions only indirectly via their representation on the boards. However, since generally all votes have equal weight, the publishers formally do not have a decisive influence on the collecting societies and even less so one single publisher. [34]

84. In this case the market investigation largely confirmed that these market conditions still exist today. In particular, in relation to the governance of the collecting societies, the majority of responding collecting societies confirms that publishers may be eligible to a seat on their Board of Directors and they seize this opportunity in practice. However, the number of seats that is open to publishers is usually limited in relation to the total number of seats and therefore their ability to exert power in relation to the standard licensing conditions is limited. [35] In addition, the market investigation confirmed that in most collecting societies decisions by the board are taken by simple majority. Since generally all votes have equal weight the publishers are not in a position to exert a decisive influence on the collecting societies' decisions. [36]

85. Moreover, according to the market investigation collecting societies are responsible for granting the licences for the mechanical and performance rights for offline use on reasonable and equal terms and subject to non-discrimination obligations [37] and not to refuse licences to users. Finally, the market investigation revealed that collecting societies set their tariffs either by following negotiations with the respective stakeholders/ representatives of users and/or trade associations or in compliance with respective legislative frameworks in each country. In most cases, collecting societies apply the BIEM-IFPI standard model agreement tariffs or the rates set by the UK Copyright Tribunal for mechanical rights for offline uses. [38]

86. The Commission considers that the particular characteristics of the markets – namely the role of the collecting societies - prevent publishers from independently pricing or setting licensing terms for mechanical or performance rights for offline use. Moreover, publishers do not formally appear to exercise a decisive influence on relevant decisions (for instance those determining royalty rates) taken by collecting societies.

2.3. Potential withdrawal of mechanical publishing rights for offline uses

87. For mechanical rights for offline use (i.e. mainly concerning licences to record companies), some respondents to the market investigation indicated that music publishers may be able to withdraw their offline mechanical rights for Anglo-American repertoire from collecting societies in the near future in the same way they have done for Anglo-American online mechanical rights. If this were to materialise, the licensing model for offline mechanical rights could become similar to the one for online mechanical rights for Anglo-American repertoire, where music publishers already control the licensing terms and conditions (see below at paragraphs 147 to 152 below).

88. Moreover, it is submitted that under the terms of the Cannes Agreement (which is an agreement between collecting societies and the major music publishers and regulates the central pan-European licensing of mechanical rights to record companies by collecting societies), the four major publishers are already able to exert veto rights over such licensing for their own repertoire (i.e. prevent their repertoire from being included in the central licensing agreement ("CLA") unless they are content with the terms being proposed). Post-merger, Sony/ATV would have a larger repertoire, which would make its potential veto over such arrangements more powerful. Sony/ATV could use its veto to hamper the ability of its competitors to conclude attractive central licensing agreements or could use its veto power to extract higher rates from record companies (in particular the smaller ones).

89. The Parties submit that with respect to offline performance rights and offline mechanical rights for Continental European repertoire, such withdrawal would not be feasible, since the rights of authors are directly transferred to the collecting societies, publishers thus not being able to own or control the rights themselves.

90. In its decision in Universal/BMG, the Commission confirmed that the publishers could in essence only withdraw Anglo-American mechanical rights on their own initiative, since only those are regularly assigned to them by the authors. All other rights (performance rights as well as mechanical rights for Continental European repertoire) are normally assigned by the authors to collecting societies. Any withdrawal of those rights by the publishers would normally require approval by the authors. Given that the approval of thousands of authors would be necessary, a withdrawal of offline performance rights and offline mechanical rights for Continental European repertoire did not seem likely. [39]

91. In relation to offline mechanical rights for the Anglo-American repertoire, the Parties submit that even if the possibility to withdraw rights exists, and even if certain publishers may have considered withdrawing mechanical rights from collecting societies (for instance as a negotiating device to improve the efficiency of, and the service provided by, collecting societies), publishers have not to date implemented alternative approaches to the licensing of mechanical rights in Anglo-American repertoire other than in relation to online distribution.

92. The Parties further submit that there are overwhelming practical reasons why no publisher has withdrawn the administration of mechanical rights for offline use from the national collecting societies.

93. First, the administration of mechanical rights for traditional use is complex and burdensome.

94. Second, there is little incentive on publishers to seek an alternative centralized model for licensing mechanical rights for offline uses. The current central licensing agreements issued under the Cannes Agreement allows record companies (the principal users of mechanical offline rights) to obtain an EEA-wide licence for the repertoire of all collecting societies from a single society.

95. Third, the Cannes Agreement creates additional benefits for publishers […] withdrawal would therefore result in the loss of efficiencies and benefits. A parallel licensing framework for the licensing of music publishers' mechanical rights for Anglo-American repertoire would mean duplicative costs and administrative burdens for music publishers.

96. Fourth, increased costs would not be likely to be compensated by higher licensing revenues. Record companies would not accept to pay higher royalties than the ones paid under the existing central licensing agreements.

97. Finally, the Parties submit that any potential withdrawal would not be merger-specific. Under the framework set up by the Cannes Agreement, no publisher has more or less 'veto' power than others. The Cannes Agreement is subject to review by the International Confederation of Music Publishers and voting within that organization does not turn on the size of individual publishers. Moreover, the benefits of the agreement apply equally to all music publishers and their authors irrespective of publisher size.

98. In its decision in Universal/ BMG, the Commission found that while significant changes to the rights administration are taking place for online rights, no such developments could be observed for mechanical and performance rights for offline uses. [40] In this context, the Commission observed that the withdrawal of mechanical and performance rights for traditional use is more difficult than the withdrawal of online rights. In particular, the administration of these rights would continue to require a high degree of local presence in the countries where the customers are located whereas online rights can, to a significant extent, be administered centrally. For a withdrawal of such rights, the assistance of collecting societies would be needed as they have at their disposal, for the respective territories, relevant information about right users as well as the necessary monitoring network. [41]

99. The Commission considers that these findings are still relevant today. Although all major publishers have withdrawn their mechanical online rights for Anglo-American repertoire from collecting societies since the Commission's decision in Universal/BMG, there has not been any similar move to withdraw the mechanical rights for offline use, which continue to be administered by the collecting societies. The market characteristics have not changed to any significant extent since that decision and the Commission does not have indications that they will change in a way that would make such a withdrawal more likely. Therefore, while the possibility of a withdrawal of mechanical rights for offline uses with respect to Anglo-American repertoire cannot be excluded in the long-term, this is not a probable development in the foreseeable future – the timeframe that is relevant for the competitive assessment of the present transaction. Furthermore, given that the major publishers are already able to veto the inclusion of their own repertoire in a CLA under the Cannes Agreement, withdrawing their repertoire from the scope of the agreement would not be merger specific and would in any event be limited to the inclusion of their repertoire in central licensing agreements under the Cannes Agreement. The Cannes Agreement does not affect the collecting societies' ability to issue national licences.

2.4. Conclusion

100. The Commission considers that as regards mechanical and performance publishing rights for offline use the control over pricing and licensing terms is to a large extent in the hands of the collecting societies. Moreover, the Commission does not have indications that the current licensing system through collecting societies, notably with respect to offline mechanical rights for Anglo-American repertoire, will change in the foreseeable future – the timeframe that is relevant for the competitive assessment of the present transaction. Therefore, it can be concluded that the merger does not raise serious doubts as to its compatibility with the internal market in relation to the markets for mechanical and performance rights for offline uses.

3. Market for print publishing rights

3.1. Market characteristics

101. The market for print publishing rights is rather small in size. The Parties estimate the EEA-market value to have been around EUR [10-20] million in 2010 representing about 1% of the overall EEA publishing market. The Parties' combined EEA-wide market share is estimated at [10-20]%, with EMI MP accounting for [10-20]% and Sony/ATV accounting for [5-10]%. Other major publishers represent [10-20]% (Universal) and [10-20]% (Warner/Chappell) of that market. The Parties have provided market shares based on estimates of revenues which are summarized in the following table: [42]

Revenue based market shares for print rights (2010)

Print |Sony/ATV |EMI MP |Merged |Universal |Warner/ Chappell |BMGRM |Imagem |Kobalt |Peer-music |Others |

|% |% |% |% |% |% |% |% |% |% |

Austria |[5-10] |-- |[5-10] |[10-20] |[5-10] |[0-5] |-- |-- |-- |[60-70] |

Belgium |-- |-- |-- |-- |-- |-- |-- |-- |-- |-- |

Bulgaria |-- |-- |-- |-- |-- |-- |-- |-- |-- |-- |

Czech Republic |-- |-- |-- |-- |-- |-- |-- |-- |-- |-- |

Denmark |[0-5] |[0-5] |[0-5] |[5-10] |[5-10] |-- |-- |-- |-- |[80-90] |

Estonia |-- |-- |-- |[5-10] |[5-10] |-- |-- |-- |-- |[90-100] |

Finland |[0-5] |-- |[0-5] |[5-10] |[40-50] |-- |-- |-- |-- |[50-60] |

France |[5-10] |[0-5] |[10-20] |[20-30] |[10-20] |[0-5] |-- |-- |[0-5] |[40-50] |

Germany |[10-20] |[20-30] |[30-40] |[10-20] |[10-20] |[0-5] |-- |-- |-- |[30-40] |

Greece |-- |-- |-- |-- |-- |-- |-- |-- |-- |-- |

Hungary |-- |-- |-- |-- |-- |-- |-- |-- |-- |-- |

Ireland |[10-20] |-- |[10-20] |[20-30] |[10-20] |[5-10] |[5-10] |[0-5] |-- |[30-40] |

Italy |[0-5] |[0-5] |[5-10] |[30-40] |[5-10] |[0-5] |-- |-- |[0-5] |[50-60] |

Latvia |-- |-- |-- |[5-10] |[5-10] |-- |-- |-- |-- |[80-90] |

Lithuania |-- |-- |-- |[5-10] |[5-10] |-- |-- |-- |-- |[80-90] |

Luxembourg |-- |-- |-- |-- |-- |-- |-- |-- |-- |-- |

Netherlands |-- |-- |-- |-- |-- |-- |-- |-- |-- |-- |

Norway |[0-5] |-- |[0-5] |[5-10] |[5-10] |-- |-- |-- |-- |[80-90] |

Poland |[20-30] |-- |[20-30] |[10-20] |[10-20] |[0-5] |-- |-- |[0-5] |[40-50] |

Portugal |[5-10] |[0-5] |[5-10] |[5-10] |[10-20] |-- |-- |-- |-- |[50-60] |

Romania |-- |-- |-- |-- |-- |-- |-- |-- |-- |-- |

Slovakia |-- |-- |-- |-- |-- |-- |-- |-- |-- |-- |

Slovenia |-- |-- |-- |-- |-- |-- |-- |-- |-- |-- |

Spain |[5-10] |-- |[5-10] |[20-30] |[20-30] |[0-5] |-- |-- |-- |[40-50] |

Sweden |[0-5] |[0-5] |[0-5] |[5-10] |[5-10] |-- |-- |-- |-- |[80-90] |

U.K. |[10-20] |[20-30] |[30-40] |[20-30] |[10-20] |[5-10] |[5-10] |[0-5] |-- |[10-20] |

EEA Total |[5-10] |[10-20] |[10-20] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[40-50] |

Source: Sony/ATV estimates |

102. On the basis of this information, the proposed transaction would give rise to horizontally affected markets in Germany and the UK. In Germany, the combined entity would have had a [30-40]% market share in 2010, with other major publishers accounting for [10-20]% (Universal) and [10-20]% (Warner/Chappell). In the UK, the combined entity would have had a market share of [30-40]% in 2010, with other major publishers representing [20-30]% (Universal) and [10-20]% (Warner/Chappell) of that market.

103. Print rights are regularly licensed directly by the publishers without any involvement of collecting societies. [43] The Parties do not produce sheet music themselves but license the rights to produce and distribute to specialist "print music publishers". The customer base is concentrated with three major print music publishers producing and distributing products based on Anglo-American repertoire and national smaller print music publishers producing and distributing products on the basis of Continental European repertoire. For the avoidance of doubt, neither Sony/ATV nor EMI MP operates a print music publishing business and according to the Parties, the investment required to provide this function in-house would be disproportionate to the limited revenues earned from print rights.

104. […].

105. It is the print music publishers who negotiate the wholesale prices with retailers and the retailers in turn set the retail prices. The royalties paid back to the music publisher are a percentage of the retail price.

106. Music publishers also license print rights to online platforms, which display music and/or lyrics on their websites. These websites are typically advertisement-funded, with royalties calculated as a proportion of the website’s advertising revenues apportioned according to the number of times each song is viewed.

3.2. Non-coordinated effects

107. The Parties submit that the estimated shares are too low to raise concerns relating to non-coordinated effects. Moreover, post-transaction, a large number of rival music publishers will continue to be present allowing ultimate customers to switch to other publishers' works or other sources of supply were the Parties to try to raise their royalty rates that impacted on retail prices.

108. As regards the two affected markets in which there is an overlap (Germany and the UK) – which together account for more than 40% of revenues in the EEA – the Commission notes that although the combined entity would become the clear market leader with roughly a third of these markets ([30-40]% and [30-40]% respectively), Universal and Warner/Chappell together account roughly for another third of the German and UK markets, with a large number of independent and/or specialized publishers representing another third. On an EEA-wide level the Parties' combined market share is only [10-20]%.

109. The Commission therefore considers that a sufficient number of alternative publishers are present in licensing print rights to print music publishers in the Germany and the UK. In the event that the merged entity would raise prices, print music publishers would be able to include more musical works from alternative publishers in their products.

Conclusion on non-coordinated effects

110. For the above reasons, the Commission concludes that the proposed transaction does not raise serious doubts as to its compatibility with the internal market in relation to non-coordinated effects in any of the markets for print publishing rights which are affected at national level.

3.3. Coordinated effects

111. To assess coordinated effects, well-established case law [44] and Commission guidelines on the assessment of horizontal mergers [45] require proof that the merger will make coordination more likely, more effective and more sustainable. The analysis needs to focus in particular on: (i) the ability to reach terms of coordination; (ii) the ability to monitor deviations; (iii) the existence of a credible deterrent mechanism if deviation is detected; and (iv) the reactions of outsiders such as potential competitors and customers.

112. The Parties submit that coordinated effects concerns do not arise because, first, the market is not transparent since the licensing terms for print rights are (i) bilaterally negotiated between music publishers and print music publishers; (ii) are not publicly available; and (iii) cannot be “reverse-engineered”. Moreover, the royalty rates are generally calculated as a percentage of the retail price, paid on the recommended retail prices (“RRP”) set by the print music publisher for offline print music, and of the revenues received by the online retailer for online print music. The print music publisher is not constrained in any way by the music publisher in negotiating wholesale prices with retailers, nor from setting the RRP.

113. Second, the Parties submit that revenues from print rights are derived in particular from works of successful authors, and therefore from competition to sign successful authors in the upstream market. Third, the large number of other significant publishers would be able to undermine any co-ordination between the major music publishers. Moreover, the possibility of new entry and expansion – as witnessed in recent years - would further destabilise any possible attempt at coordination. Fourth, there is no plausible retaliatory mechanism that might sustain any tacit understanding in relation to the licensing of print rights.

114. The market investigation was inconclusive as to the transparency of the print rights market and as to whether prices charged by the major publishers for the licensing of print rights are aligned. [46] Some customer responses indicate that while royalty rates appear to be similar, advances and/or guaranteed minimum royalties may differ among publishers.

115. The Commission notes that the Parties' market shares between 2008 and 2010 fluctuated considerably both at EEA-level and in Germany and the UK. [47] This would appear to confirm the Parties' argument that the unpredictability of authors' success would have the effect of rendering coordination attempts more unstable.

116. Moreover, music publishers other than the three major publishers remaining post-transaction control a large portion of the print rights markets, notably between 50% and 60% of EEA print rights revenues (depending on the year). [48] In the UK, non-major music publishers account for market shares of [30-40]% (2010) and [50-60]% (2009). In Germany, they represented [30-40]% (2010) and [20-30]% (2009) of the print rights market. This multitude of smaller music publishers (even if the market share of significant independent music publishers does not exceed 5% on any national market) is likely to undermine any attempts of coordination among the major publishers.

Conclusion on coordinated effects

117. For the above reasons, the Commission concludes that the proposed transaction does not raise serious doubts as to its compatibility with the internal market in relation to coordinated effects in any of the markets for print publishing rights which are affected at national level.

4. Market for synchronisation publishing rights

4.1. Market characteristics

118. Synchronisation publishing rights are purchased in order to synchronise a musical work with a visual image for incorporation in audio-visual works such as a film, TV programme or advertisement. Final customers therefore include TV and film production companies, advertising agencies and computer game developers. Licences are usually commercialized directly by music publishers. [49]

119. The Parties submit that it is difficult to determine market shares for synchronisation rights given that there is no reliable data on the total market size, revenue splits of most music publishers is not available and a small number of licences per year can materially alter a particular company's revenue share. At EEA-level, the Parties estimate total revenues to be around EUR [100-200] million ([10-20]% of the EEA overall music publishing market). The Parties estimate that their combined EEA-wide market share (in revenues) would be [20-30]%, with EMI MP accounting for [10-20]% and Sony/ATV for [10-20]%. Universal would account for [20-30]% and Warner/Chappell for [10-20]%. The Parties further submit that BMG Rights Management's EEA-wide market share would have gone up to [5-10]% since 2010 due to its recent acquisitions of Chrysalis and Bug Music. The following table summarises market shares for the national markets:

Revenue based market shares for synchronisation rights (2010)

Synchronization |Sony/ATV |EMI MP |Merged |Universal |Warner/ Chappell |BMGRM |Imagem |Kobalt |Peer-music |Others |

|% |% |% |% |% |% |% |% |% |% |

Austria |[5-10] |[0-5] |[10-20] |[10-20] |[5-10] |[0-5] |[0-5] |[0-5] |[0-5] |[60-70] |

Belgium |[10-20] |[20-30] |[40-50] |[20-30] |[10-20] |[5-10] |[0-5] |[0-5] |-- |[10-20] |

Bulgaria |[10-20] |[5-10] |[10-20] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

Czech Republic |[10-20] |[5-10] |[20-30] |[30-40] |[20-30] |[0-5] |[0-5] |[0-5] |-- |[10-20] |

Denmark |[5-10] |[0-5] |[5-10] |[30-40] |[20-30] |[0-5] |-- |-- |[5-10] |[20-30] |

Estonia |[10-20] |[5-10] |[20-30] |[30-40] |[10-20] |[0-5] |-- |-- |[0-5] |[20-30] |

Finland |[5-10] |[0-5] |[10-20] |[30-40] |[20-30] |[0-5] |-- |-- |[5-10] |[20-30] |

France |[5-10] |[10-20] |[20-30] |[30-40] |[10-20] |[0-5] |-- |-- |[0-5] |[20-30] |

Germany |[10-20] |[20-30] |[30-40] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

Greece |[5-10] |[10-20] |[20-30] |[10-20] |[10-20] |-- |-- |[0-5] |[0-5] |[40-50] |

Hungary |[0-5] |[90-100] |[90-100] |[0-5] |[0-5] |[0-5] |[0-5] |[0-5] |-- |-- |

Ireland |[10-20] |[10-20] |[30-40] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

Italy |[5-10] |[10-20] |[10-20] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[50-60] |

Latvia |[5-10] |[0-5] |[5-10] |[30-40] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

Lithuania |[0-5] |[0-5] |[0-5] |[30-40] |[10-20] |[0-5] |[0-5] |[0-5] |[5-10] |[30-40] |

Luxembourg |[0-5] |[0-5] |[0-5] |[0-5] |[0-5] |[0-5] |[0-5] |[0-5] |[0-5] |[0-5] |

Netherlands |[5-10] |[10-20] |[10-20] |[20-30] |[10-20] |[5-10] |[5-10] |[0-5] |[0-5] |[30-40] |

Norway |[5-10] |[5-10] |[10-20] |[30-40] |[10-20] |[0-5] |[0-5] |[0-5] |[5-10] |[20-30] |

Poland |[20-30] |[10-20] |[30-40] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

Portugal |[5-10] |[10-20] |[20-30] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

Romania |[10-20] |20-30] |[40-50] |[10-20] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

Slovakia |[10-20] |[0-5] |[10-20] |[30-40] |[20-30] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

Slovenia |[10-20] |[0-5] |[10-20] |[30-40] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[20-30] |

Spain |[10-20] |[10-20] |[20-30] |[20-30] |[20-30] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

Sweden |[5-10] |[40-50] |[40-50] |[30-40] |[10-20] |[0-5] |[0-5] |[0-5] |[0-59 |[0-5] |

U.K. |[10-20] |[10-20] |[20-30] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

EEA Total |[10-20] |[10-20] |[20-30] |[20-30] |[10-20] |[0-5] |[0-5] |[0-5] |[0-5] |[30-40] |

Source: Sony/ATV estimates The parties submit that total revenues in Cyprus, Iceland, Liechtenstein and Malta are de minimis. […]. The parties submit that total revenues in Cyprus, Iceland, Liechtenstein and Malta are de minimis. […]. |

120. According to this information, the markets of 18 EEA countries are horizontally affected, namely those for Belgium, Bulgaria, Czech Republic, Estonia, France, Germany, Greece, Hungary, Ireland, Italy, Netherlands, Poland, Portugal, Romania, Slovenia, Spain, Sweden, and the UK

121. Post-merger, the Parties would be the market leader in ten EEA countries, namely Belgium ([40-50]%), Germany ([30-40]%), Greece ([20-30]%), Hungary ([90-100]%), Ireland ([30-40]%), Poland ([30-40]%), Romania ([40-50]%), Spain ([20-30]%) and Sweden ([40-50]%) and the UK ([20-30]%).

4.2. Non-coordinated effects

122. The Parties submit that their share of [20-30]% at EEA-level is too low to raise concerns. Although the estimated shares are higher in some EEA countries, these likely overstate the merging Parties' position in these countries and their reliability is doubtful for several reasons. In addition to the general uncertainty and volatility of estimates, in some EEA countries, total revenues are very small and are therefore administered by publishers through regional offices located in other countries. For these countries, it is particularly difficult to estimate shares of revenue with any accuracy. [51] Moreover, the revenues for Sony/ATV and EMI MP in many European countries include royalties for synchronisation rights exploited on a cross-border, pan-European (or even global) basis, [52] which may overstate the Parties' relative strength at national level in certain instances.

123. The Parties submit that licensees are either wedded to a particular song, in which case the transaction will have no effect (as the size of the catalogue does not matter), or have (and will continue to have), from a supply perspective, a wide range of alternatives capable of meeting their needs. These alternatives would include a large number of rival music publishing companies, the commissioning of new unique musical works or musical works that are no longer subject to copyright (such as classical music). [53] Furthermore, the Parties note that it is increasingly common for authors to retain a veto right over the licensing of synchronisation rights.

124. On the demand-side, the Parties submit that customers will usually select a song or a short list of songs, which will determine which publisher the customer will approach. Final users of the musical work commonly rely on an intermediate, such as an advertising agency or media consultant, to identify musical works of potential interest. In this sense, the licensing of synchronisation rights is a repeat business with sophisticated customers (such as film studios or intermediaries). Fees are typically negotiated bilaterally between the music publisher and author on the one hand, and the licensee and their intermediary on the other hand. They take the form of a fixed fee and/or a per usage fee.

125. In Universal/BMG, the Commission concluded that synchronisation customers usually select a particular song rather than a particular publisher. [54] Given these purchasing patterns, customers usually have sufficient alternatives to license the use of the song they desire. The Commission considered further that the high volatility in market shares at national level results from the revenues achieved with synchronisation rights sold for a few films or advertisement spots. Depending on the deals closed in a specific year, the market shares may therefore change significantly.

126. The market investigation generally confirmed the market characteristics described in the Commission's Universal/BMG decision. Customers confirm that the choice of musical works drives the decision which publisher to contact and that they rely on intermediates in particular with respect to advertising. [55] A large majority of customers confirm that there is price competition between different publishers. [56] The negotiated price depends on a large number of variables including the popularity or type of the musical work, the intended use, the geographic scope and duration. [57]

127. One customer raised the concern that the merger would result in higher fees for synchronisation rights, a more restrictive scope for the use of the song and fewer opportunities to have original musical works commissioned as other repertoires cannot substitute for the musical works that this new entity would control (such as the Beatles songs controlled by Sony/ATV or the Motown catalogue controlled by EMI MP). In addition, the customer points out that due to fractional interests in the publishing rights for songs being relatively common, there is collective ownership/control over many songs leading to higher prices as typically every owner/controller demands to be compensated.

128. The Commission observes that while the market share of [20-30]% does not raise a presumption of significant market power at EEA-level, the combined 2010 market share of the Parties in a few EEA countries are very high, notably in Hungary ([90-100]%). However, the Commission notes, first, that there is a high volatility in the estimated market shares over the past three years. [58] Second, the estimated total market size in Hungary is very small and thus represents a relatively small number of licensing deals. [59]

129. Furthermore, the Commission considers that a number of practices confirmed by the market investigation, and in line with previous Commission findings, indicate that the merged entity will not be in a position to impose higher prices for synchronisation rights in any of the affected geographic markets. Customers usually select a song or certain musical works and not a publisher or a publisher's catalogue. In the event that customers are flexible as to which musical works to license, there will still be a large number of alternatives since all publishers – larger and small ones – have a vast number of different musical works in their catalogues. Even in those EEA countries in which the merged entity will have a prima facie high market share, it is not likely that competition concerns would arise since the merged entity's market position will remain contestable as a result of the fact that sufficient alternative musical works will remain.

130. In the event that a customer is wedded to a particular song (such as a Beatles song) or a catalogue of songs (such as the Motown catalogue), even a small publisher would have pricing power over these particular musical works. The merger would not affect this situation (since the size of the catalogue does not matter). As to the concern that fractional interests would lead to higher prices given that two or more music publishers often hold an interest in a given musical work, the Commission notes that this concern is not merger specific and, to the extent that price increases were to be driven by this mechanism, the merger may also result in less songs for which publishing rights are split among music publishers.

Production music

131. One market participant raised a potential competition issue in relation to so-called "production music" or "library music", i.e. original musical works specifically commissioned by publishers for synchronisation purposes and in which the publisher also owns the recording rights. According to this claim, the merged entity would become a strong leader in the supply of production music, which it could use to extract favourable terms from licensees or to foreclose its competitors' access to customers by striking exclusive deals for that type of music.

132. First, the Commission notes that the market investigation was inconclusive as to whether production music should be considered as a separate market from the wider market for synchronisation rights in which other musical works are potential substitutes. [60] Second, even if production music were a separate market, the Parties' market shares in production music would remain under 40% except in Poland ([50-60]%) and Sweden ([40-50]%). The Parties estimate their EEA-wide share at [20-30]%, which is not significantly different from the EEA-wide market share in the market for synchronisation rights ([20-30]%). Third, music publishers generally have appointed collecting societies to grant licences for production music including for individual works under standard rates in some countries such as the UK and Ireland, which implies that the Parties would have little control over licensing conditions in these countries. [61] Moreover, as described in the footnote to paragraph 118 above, certain licensees such as producers of TV programmes obtain blanket licenses to production music via collecting societies in most other European countries, with the exception of Scandinavia and some Eastern European countries (but not Poland). As for the claim that the Parties may be able to strike exclusive deals, this appears unlikely given that Sony/ATV currently has a fragmented licensee pool, which would require it to bind a very large number of different licensees in order to effect a material change on its market position. [62]

Conclusion on non-coordinated effects

133. For the above reasons, the Commission concludes that the transaction does not raise serious doubts as to its compatibility with the internal market in relation to non-coordinated effects in any of the markets for synchronisation publishing rights (or in respect of production music were that to be considered as a separate market) which are affected at national level.

4.3. Coordinated effects

134. To assess coordinated effects, well-established case law [63] and Commission guidelines on the assessment of horizontal mergers [64] require proof that the merger will make coordination more likely, more effective and more sustainable. The analysis needs to focus in particular on: (i) the ability to reach terms of coordination; (ii) the ability to monitor deviations; (iii) the existence of a credible deterrent mechanism if deviation is detected; and (iv) the reactions of outsiders such as potential competitors and customers.

135. In its decision in case Universal/BMG, the Commission concluded that coordination among major music publishing companies in the market for synchronisation publishing rights was unlikely, given the lack of transparency, the diversity of deals in terms of price, duration, territory, media, and recognition of work.

136. The Parties submit that coordinated effects do not arise because, first, the market is not transparent as the terms of synchronisation contracts are bilaterally negotiated, not publicly available and diverse in terms of price, duration, territory, media, and renown of the work. Second, demand for particular songs is unpredictable which would make it impossible to reach a tacit understanding to allocate customers. Third, a plausible retaliatory mechanism is lacking. Fourth, the fact that a large number of other publishers are active in the market would undermine any coordination.

137. The market investigation did not support the argument that the prices and deal terms for synchronisation rights, or indeed for production music rights, are sufficiently transparent to allow for coordination. [65] Moreover, the large majority of independent publishing competitors does not consider licensing terms to be transparent, [66] with the possible exception (mentioned by some respondents) for songs that are co-published by two or several publishers as the latter need to license their shares in the song to a customer.

138. The Commission notes that the fact that market shares between 2008 and 2010 fluctuated considerably in a large number of EEA countries [67] appear to confirm the argument that demand for the music to be licensed is unpredictable and would have the effect of rendering coordination attempts inherently more unstable.

Conclusion on coordinated effects

139. Given the lack of transparency on terms in synchronisation agreements, including for production music, the diversity of parameters determining the licence value, and the unpredictability of demand for synchronisation licences, the Commission concludes that the transaction does not raise serious doubts as to its compatibility with the internal market in relation to coordinated effects in the market for synchronisation publishing rights.

5. The markets for the exploitation of online rights

5.1. Introduction

140. Online music markets are important growth markets. According to IFPI, physical recorded music sales have fallen by more than 35% in the past three years. [68] While revenues from physical recorded music have fallen, revenues from online music have steadily grown and now represent a significant proportion of total recorded music revenues. Between 2004 and 2010, worldwide online music revenues (including recorded music rights) rose from USD 400 million to USD 4.6 billion. As a result, online music revenues now account for over 30% of total recorded music revenues.

141. According to the Parties, the continued decline of physical recorded music places strong pressure on publishers to promote and grow demand for authorised online music through the broad licensing of their rights.

Customers for online rights

142. Music publishing rights are licensed to online music platforms that make music available to consumers through various means. The principal means of online music dissemination are through downloading and streaming. The same copyrights and repertoires are typically licensed for both forms of online music dissemination.

143. Downloading involves the purchase and storage of a digital copy of a musical work on one or more computers or electronic devices. Prototypical examples of download platforms are Apple's iTunes service and Amazon's MP3 service.

144. With a streaming service, the user does not download music files and no permanent copy is stored on the user's computer or electronic device. Instead, the audio file is delivered in small data packets over the Internet and playback commences as soon as the Internet streaming is initiated. Streaming services can comprise a basic, ad-sponsored service that is available free of charge and a premium, paid-for service. Premium services are typically ad-free, offer additional functionality (for instance unlimited plays of songs, a larger music library or support of mobile devices) and may grant users the possibility to download and store tracks in order to listen to them offline during the period of the subscription (so-called "tethered downloads"). [69] Important examples of streaming services available in the EEA include Spotify, Simfy, Deezer, We7 and Last FM. Google's YouTube is an important video streaming platform funded by advertising.

145. Streaming technology has also allowed for new platforms and business models to develop over the last few years. Internet service providers and mobile network operators increasingly offer music streaming services, either by developing their own branded services (often bundled with telecom subscriptions) or via partnerships with existing streaming platforms. [70] Some streaming services have also struck partnerships with social networking sites. For example, according to the Parties, a Facebook account is now a pre-requisite for signing-up to Spotify's service. Finally, cloud music services that offer users the ability to store their acquired music on remote servers have emerged. An example of this type of service is Apple's iTunes Match, which was launched in the EEA at the end of 2011. iTunes Match scans a user's music library, matches those songs with the iTunes music catalogue hosted on Apple's servers and allows users to download or stream a song from the cloud locker to the device.

146. Downloads currently continue to account for the large majority of online revenues. According to the Parties, approximately [80-90]% of Sony/ATV's total EEA online revenues and around [80-90]% of EMI MP's online revenues are generated from downloads. Streaming services are, however, on the rise and many market participants expect streaming revenues to grow significantly in the future. As the Parties explain, within three years of its launch, the streaming service Spotify has grown into the second largest online music platform behind iTunes. In some EEA countries, in particular in Scandinavia, Spotify is now the leading online music platform.

Restructuring of the licensing of online rights to Anglo-American repertoire

147. The licensing of publishing rights for online use has undergone some significant changes. Prior to 2005, only national collecting societies issued licences (and determined the rates at which these rights were licensed) for online mechanical and performance rights. Those licences were limited to the home territory of the collecting society. An online music platform wishing to set up a service across multiple EEA countries therefore had to negotiate with the national collecting societies for each of those countries in addition to negotiating with recorded music companies.

148. Following the Commission's 2005 Recommendation on the cross-border collective management of copyright for online use [71] , which favoured a business model whereby publishers should be free to choose among collecting societies to manage their works on a pan-European basis (so-called Option 3 model), all the major music publishers have reorganised the way in which online licences to their Anglo-American repertoire are granted and administered. This reorganisation has taken the form of music publishers appointing individual collecting societies or collective rights management entities owned by one or several collecting societies to administer centrally the licensing of their Anglo-American repertoire for online dissemination. For both practical and legal reasons, these initiatives have concerned only Anglo-American repertoire. [72]

149. Moreover, given the difficulties in withdrawing the performance rights of Anglo repertoire from the UK collecting society PRS and the Irish collecting society IMRO (see paragraph 80 above), and the fact that the performance rights relating to American repertoire have been administered by European collecting societies on the basis of representation agreements with the US performance collecting societies ASCAP, BMI and SESAC, the publishers' initiatives have to date focused on mechanical rights for Anglo-American repertoire. [73] In order to include Anglo-American performance rights for online use with the mechanical rights for online use in a "one-stop-shop" pan-European licence, separate arrangements with the collecting societies administering Anglo-American rights have had to be concluded.

150. In the EEA, Sony/ATV has appointed PAECOL, a subsidiary of the German collecting society GEMA, to administer and license its mechanical online rights for Anglo-American repertoire on a pan-European or multi-territory basis or for an individual Member State. EMI MP has appointed CELAS, a joint venture between GEMA and the UK collecting society for performance rights PRS, for the same task. [74] […] There are arrangements with the relevant performance rights collecting societies that allow these entities to negotiate licences for mechanical and performance rights for the Parties’ Anglo-American repertoire. [75]

151. The appointment of PAECOL and CELAS is non-exclusive. As a result, Sony/ATV and EMI MP retain the possibility to entrust other entities with the negotiation of online licences, either on a permanent or ad-hoc basis. Both Parties have given examples of such appointments. [76] PAECOL and CELAS are also free to provide licensing and administration services to other music publishers.

152. In parallel with PAECOL, national collecting societies remain enabled to grant country-specific online licences for Sony/ATV’s Anglo-American repertoire, subject to Sony/ATV’s approval above defined value thresholds. In parallel with CELAS, EMI MP appoints national collecting societies as sub-agents on a case-by-case basis for granting local online licences.

Key licensing terms and conditions

153. Publisher royalties for online downloads are typically expressed as a percentage of the retail price of the download. They may be combined with a minimum per download fee.

154. In the case of streams, royalties are typically calculated as a percentage of the subscription fee that end users pay or of the advertising revenue generated by the service. They are usually weighted by the proportion of usage accounted for by a given music publisher's repertoire. The Parties have provided a mathematical example that illustrates the way that publisher revenues are obtained. For instance, if the monthly subscription fee costs EUR 4.50, the royalty rate charged by the publisher is 10% and the usage accounted for by the publisher's repertoire is 20%, then the revenue that the publisher would obtain would be 20% of 10% of EUR 4.50 per user of the streaming service. [77] Similar to downloads, such a percentage rate can be combined with a minimum per stream or per subscriber royalty.

155. Advance payments, on account payments or other lump sum payments also form part of the key licensing terms and conditions. A large number of online customers make these types of payments to the larger music publishers. These payments can be made in advance of actual payments that are based on the real usage accounted for by a music publisher’s repertoire. The risk that revenues are not sufficient to cover all advance or minimum payments typically lies with the customers. These types of payments therefore generally constitute guaranteed revenue payments for music publishers.

156. Other terms and conditions include conditions on the promotional use of each music publisher’s repertoire or restrictions on the usage that end user can make of that repertoire (for instance, limitation of number of streams of the same song or the number of songs that can be downloaded/streamed for free).

The ability of the Parties to control the licensing terms and conditions of their Anglo-American repertoire

157. The Parties argue that despite this re-organisation of their Anglo-American online rights, the Parties do not have pricing control over these rights. In this context, they make the following claims.

158. First, the […].

159. Second, the tariffs set by PAECOL and CELAS cover both mechanical and performance rights. This implies that the single tariff applied must also be approved by the relevant performance rights societies (e.g. PRS).

160. Third, the single royalty is allocated between the publisher for the mechanical rights portion and the performance rights society for the performance rights portion. [78] This split varies between downloads and streams with a higher proportion going to the performance rights societies in the case of streams. The collecting societies determine the exact level of the split.

161. Fourth, the royalty rates for download platforms have not evolved differently for Anglo-American repertoire and Continental European repertoire that has remained wholly under the control of the collecting societies […].

162. Fifth, royalty rates and minimum rates that music publishers grant to online platforms would still be constrained by the regulatory tariffs that collecting societies set for the licensing of publishing rights to online platforms. The Parties highlight that the collective rights management entities that they have appointed to license their online rights are affiliated to collecting societies. [79] […].

163. Sixth, licensees have no reason to pay materially higher rates for Anglo-American repertoire than Continental European repertoire.

164. Even if all the Parties' arguments were to be true, quod non, it is ultimately Sony/ATV and EMI MP who have to approve every licence relating to Anglo-American repertoire. The market investigation showed that after the withdrawal of online rights from the traditional collecting society system, music publishers can and do exert control over rates and other commercial terms that are included in licences for those rights. Online customers have listed concrete examples of negotiations, including with the merging Parties, where licensing terms were either set by publishers directly or modified on the initiative of the publishers. The vast majority of customers and collecting societies agreed that the influence of collecting societies on the licensing of Anglo-American rights has diminished after the withdrawal of those rights from collecting societies.

165. The position of the collective rights management entities that have been appointed by the Parties, even if associated with collecting societies, remains markedly different. Given the fact that their appointment is non-exclusive and music publishers can and do appoint other entities to administer and license their online rights, their commercial influence vis-à-vis those publishers is likely to be lower than that of the traditional collecting societies. The market investigation has produced examples of music publishers, including the merging Parties, who have referred online platforms to other rights management entities in case negotiations with the primary entities that Sony/ATV and EMI MP have appointed reached a state of deadlock. The market investigation therefore confirmed that also in this regard music publishers can and do control rates and other licensing terms for their withdrawn Anglo-American repertoire.

166. This is in particular the case with regard to streaming services where the market investigation has provided evidence that licensing terms and conditions differ as between music publishers for Anglo-American rights.

5.2. Market shares and control shares

167. The Parties have provided the following revenue market share estimates for the national markets for the exploitation of online rights:

Table 1: Online rights (2010) (revenues) [80]

|Sony/ATV |EMI MP |Combined |Universal |Warner/ Chappell |Others According to the parties, the c