2005/188/EC: Commission Decision of 19 July 2004 declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case No COMP/M.3333 — SONY/BMG) (notified under document number C(2004) 2815) (Text with EEA relevance)
Date: 2004-07-19
Institutions: European Commission
Subjects: European Economic Area, audiovisual industry, economic concentration, merger control, music, record

L 62/30

EN

Official Journal of the European Union

9.3.2005

COMMISSION DECISION

of 19 July 2004

declaring a concentration compatible with the common market and the functioning of the EEA
Agreement
(Case No COMP/M.3333 — SONY/BMG)

(notified under document number C(2004) 2815)

(Only the English text is authentic)

(Text with EEA relevance)

(2005/188/EC)

On 19 July 2004 the Commission adopted a Decision in a merger case under Council Regulation (EEC) No 4064/89
of 21 December 1989 on the control of concentrations between undertakings (1), and in particular Article 8(2) of that
Regulation. A non-confidential version of the full Decision can be found in the authentic language of the case and in
the working languages of the Commission on the website of the Directorate-General for Competition, at the following
address: http://europa.eu.int/comm/competition/index_en.html

(1)

(2)

(3)

(4)

a

On 9 January 2004, the Commission received a notifi-
cation under Article 4 of Regulation (EEC) No 4064/89
(the Merger Regulation) of
transaction whereby
Bertelsmann AG (Bertelsmann) and Sony Corporation
of America, belonging to the Sony group (Sony),
contribute the global recorded music businesses of the
parties (excluding Sony’s activities in Japan) into a joint
venture. This joint venture shall be operated under the
name Sony BMG and will be active in the discovery and
the development of artists (so-called A&R (2)) and the
subsequent marketing and sale of recorded music. Sony
BMG will not engage in related activities such as music
publishing, manufacturing and distribution.

Bertelsmann is an international media company with
world-wide activities in music recording and publishing,
television, radio, book and magazine publishing, print
services and book and music clubs. Bertelsmann is
active in recorded music through its wholly owned
subsidiary Bertelsmann Music Group (BMG). BMG’s
record labels
Jive Records,
include Arista Records,
Zomba and RCA.

Sony is globally active in music recording and publishing,
industrial and consumer electronics, and entertainment.
In recorded music it acts through Sony Music Enter-
tainment.
include Columbia Records
labels
Group, Epic Records Group and Sony Classical.

Sony’s

The Advisory Committee on Concentrations, at its 127th
meeting, on 9 July 2004, delivered a favourable opinion
on a draft Decision granting clearance submitted to it by
the Commission.

(1) OJ L 395, 30.12.1989, p. 1. Regulation as last amended by Regu-

lation (EC) No 1310/97 (OJ L 180, 9.7.1997, p. 1).

(2) A&R = Artist and Repertoire; the music industry’s equivalent of

research and development.

(5)

The Hearing Officer, in a report dated 5 July 2004, took
the view that the right of the parties to be heard had
been respected.

(6)

(7)

(8)

I. THE RELEVANT MARKETS

Recorded music

The Commission found that the relevant product market
for recorded music (including A&R and the promotion,
sales and marketing of
recorded music) might be
subdivided into distinct product markets based on
local pop, classical
genre (such as international pop,
music) or
the
it could be left open whether
present case, however,
the abovementioned genres or categories
constitute
separate markets, as the concentration would not lead
to a creation or strengthening of a dominant position
under any market definition considered.

for compilations. For the purpose of

The market investigation confirmed a number of factors
(e.g. A&R, pricing, sales and marketing mainly taking
repertoire,
place nationally, strong demand for
independent
and limited international presence of
record companies)
for the relevant geographic markets
for recorded music being considered as national.

local

Online music

Supported by its findings in the market investigation, the
Commission considers that online music is not part of
the market for physical recorded music, in particular due
to differences in the product and its distribution. It iden-
tified two distinct product markets for online music: (i)
the wholesale market for licences for online music and
(ii) the retail market for distribution of online music.

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Official Journal of the European Union

L 62/31

(9)

For the purpose of the present case the Commission
considers that both the wholesale market for licences
for online music and the retail market for distribution
of online music are national in scope. This may change
in the future, depending on further cross-border devel-
opments in online music licensing and music distri-
bution.

(10)

(11)

(12)

(13)

Music publishing

Based on both demand and supply-side considerations
the Commission found indications for the existence of
separate product markets for music publishing according
to the exploitation of the different rights categories (i.e.
mechanical, performance,
synchronisation, print and
other rights). However, the exact scope of the relevant
product market could be left open as the competitive
assessment
is the same under any market definition
considered.

confirmed that

investigation has

The market
the
geographic scope of the market is essentially, and in
spite of some cross-border elements, national, given
that licence fees for mechanical and performance rights
the
are generally collected on a national basis. For
purpose of
the
the present case the exact scope of
relevant geographic market could be left open as the
competitive assessment is the same under any market
definition considered.

II. ASSESSMENT

A. Possible strengthening of collective dominance in
the recorded music markets

Introduction

The Commission’s investigation has not provided suffi-
ciently conclusive
existence of a
collective dominant position of the five ‘majors’ (Sony,
BMG, Universal, EMI and Warner)
in the markets for
music recording.

evidence

the

for

the European courts,

in
Based on the case law of
particular the Airtours judgment, a prerequisite for the
existence of a collective dominant position among
(i) a common understanding about
market players is:
the ability to monitor
the terms of coordination;
whether such terms are adhered to; (iii) the existence of
a deterrent mechanism in case of deviations; and (iv)
third
competitors,
and
customers) not being able to effectively jeopardise the
benefits expected from coordination.

potential

parties

(actual

(ii)

(14)

(15)

(16)

In assessing whether there exists a collective dominant
position in the markets for recorded music among the
five music majors,
the Commission analysed whether
during the last three to four years a coordinated price
policy of the majors could be established in the EEA
Member States.

For this purpose the Commission investigated the deve-
lopment of the five majors’ wholesale prices to whole-
salers and retailers in each Member State in the period
1998 to 2003. In particular, the Commission’s analysis
focused on the development of average net wholesale
prices, PPDs (Published Prices to Dealers), gross and net
price ratios as well as invoice discounts and retrospective
discounts.

the

a possible

coordination of

the majors’
To assess
wholesale prices,
the Commission analysed the paral-
(inflation-corrected)
lelism of
development of
average net prices for the top 100 single albums of
each major in the five largest Member States (this is
considered a representative sample as
the top 100
single albums account for approximately 70 to 80 % of
the majors’ respective total music sales). Secondly, the
Commission examined whether any price coordination
could have been reached in using list prices (PPDs) as
focal points. Thirdly, the Commission analysed whether
the different majors’ discounts were aligned and suffi-
ciently transparent in order to allow effective monitoring
of competitive behaviour.

France, Germany, Italy, Spain, UK

(17) On the basis of the net average prices, the Commission
found some parallelism and a relatively similar deve-
lopment of
larger
markets, France, Germany,
Italy, Spain and the UK.
However, these observations as such are not sufficient
to conclude that coordinated pricing behaviour existed
in the past.

the majors’ prices

in the

five

(18)

Therefore, the Commission further investigated whether
additional elements, namely list prices and discounts,
were aligned and sufficiently transparent
to provide
sufficient evidence for coordination.

(19)

The Commission found some indications that PPDs could
have been used as focal points for an alignment of the
majors’
list prices in all five Member States. Regarding
discounts, the investigation indicated that the level of
discounts varied to some extent among the different
majors and that certain types of discounts were not suffi-
ciently transparent to establish existing collusion.

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Official Journal of the European Union

9.3.2005

(20)

the Commission analysed whether
recorded music were

the
Furthermore,
characterised by
markets
for
features facilitating collective dominance,
in particular
by considering product homogeneity, transparency and
retaliation mechanisms.

Member States, are also valid for the smaller Member
States.

Conclusion

(26)

(27)

(28)

(29)

(21) As to product homogeneity, the Commission found that
the content of individual albums is differentiated but also
that pricing and marketing are standardised to some
extent. However, the heterogeneity of content has some
implications for pricing and reduces transparency in the
market and makes tacit collusion more difficult as it
requires monitoring at the individual album level.

the stability of

(22) With respect to transparency, the Commission found that
the publication of weekly charts,
the
common customer base and the majors’ monitoring of
the retail market by means of weekly reports increase the
market transparency and facilitate the monitoring of a
coordinated policy. However,
investigation also
indicated that
the monitoring of campaign discounts
requires monitoring on an album level, which reduces
tacit
in the market
the
collusion more difficult. On balance, the Commission
has not found sufficient evidence that the majors have
overcome this transparency deficit in the past.

transparency

and makes

the

(23) As to retaliation,

(temporary)

the Commission explored whether
majors could retaliate against any ‘cheating’ major,
in
particular by a
return to competitive
behaviour or by exclusion of the deviator from compi-
lation joint ventures and agreements. However,
the
Commission has not
found sufficient evidence that
such retaliation mechanisms have been applied or used
as a threat in the past.

The Netherlands, Sweden, Ireland, Austria, Belgium, Denmark,
Finland, Norway, Portugal, Greece

(24)

In the smaller Member States the Commission equally
found a considerable degree of parallelism between the
PPDs of the majors which,
in principle, could be have
been used as focal points by the majors to align prices.
However, the investigation revealed, also in the smaller
Member States, some differences in the level of discounts
and deficits of
to certain
discounts.

transparency with respect

(25)

The Commission’s considerations as to homogeneity of
the product, transparency of the market and the possi-
the larger
bility to retaliate, as

specified above for

The Commission considers
found
sufficient evidence for an existing collective dominant
position of the five music majors in the markets for
recorded music in any EEA Member State.

it has not

that

B. Possible creation of collective dominance in the
recorded music markets

The Commission has also considered whether the merger
would lead to the creation of collective dominance of the
music majors in any EEA Member State. However, in the
light of the above remarks, in particular regarding market
transparency, product content heterogeneity and reta-
liation, the Commission considers that the effect of a
reduction from five
following the
merger would not be substantial enough to lead to the
creation of a collective dominant position of the majors
in the recorded music markets.

to four majors

C. Possible creation of single dominance in the
recorded music markets

Third parties raised concerns that the joint venture would
achieve a position of single dominance in the markets for
recorded music due to the joint venture’s vertical rela-
tionship to Bertelsmann’s media interests.
It is argued
that Bertelsmann could use its position in television
and radio stations to foreclose competitors and favour
Sony BMG, in particular by granting preferential rates or
treatment or by
from
foreclosure of
promoting their artists via these channels.

competitors

The Commission concludes that it is not likely that the
proposed joint venture would achieve single dominance
on the markets for recorded music in Germany,
the
Netherlands, Belgium, Luxembourg and France, where
Bertelsmann is active via RTL TV and radio stations.
The advantages derived from the vertical
integration in
Bertelsmann’s media group (e.g. through the Pop Idol
format which, according to industry experts has already
passed its peak) are already incorporated in BMG’s
market shares for 2003. On the basis of these market
shares the proposed joint venture does not reach the
threshold
the
Commission has not found any evidence that it could
be a profitable strategy for Bertelsmann to foreclose
competitors from access to its TV channels and radio
stations.

Furthermore,

dominance.

single

of

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Official Journal of the European Union

L 62/33

(30)

D. Possible collective dominance in the wholesale
market for licenses for online music

The Commission notes that the market for legal online
music is currently in a state of infancy as most of the
for online music have only recently started
sites
operations in the EEA. It is therefore difficult to defini-
tively conclude on the market positions of the major
record companies, particularly in relation to national
markets. In addition, the information on actually down-
loaded or streamed songs does not appear to give a clear
picture of the different players’ market positions and no
public industry data is available. However, on the basis of
the information received by the Commission, it can be
concluded that the market position of the major record
companies on the wholesale market
for licences for
online music appears to be by and large similar to
their position on the markets for recorded music.

(31) Given the emerging state of

the markets and the
differences in pricing and conditions in the current
agreements,
the Commission has concluded that no
sufficient evidence could be found for an existing
collective dominant position of
the majors on the
national markets for licences for online music and that
the concentration would not result in the creation of a
collective dominant position on these markets.

(32)

E. Possible single dominance in the online music
distribution markets

Third parties have raised concerns that, as a result of the
transaction, Sony could obtain a position of
single
dominance on the national markets for distribution of
online music via its Sony Connect music downloading
service. It has been submitted that Sony could use the
control of the joint venture to foreclose competitors in
the downstream market for distribution of online music,
in particular by denying competing online platforms
access to the joint venture’s library or by engaging in
its competitors, e.g.
discriminatory behaviour vis-à-vis
by means of usage rules, time of release of new songs
and the track format.

(33)

is
The Commission considers
currently only in the process of being launched in
Europe, after having been launched in the US in May
2004. It therefore currently does not have a share of

that Sony Connect

(34)

(35)

(36)

the market. Also, other players have already gained a
certain position in the market (e.g. OD2) and further
players have recently entered the market or announced
that they would do so soon. Furthermore, by foreclosing
the proposed joint venture Sony BMG
competitors,
would forego considerable licence revenues
the
tracks
sold by competitors and it appears doubtful
whether such a strategy would be profitable.

for

F. Possible spill-over effects in music publishing

Third parties have raised concerns that the creation of
the joint venture would have as its effect the coordi-
in the
nation of
closely related markets for music publishing.

the parties’ competitive behaviour

(at

for

the

least

societies

collecting

The Commission considers that any coordination could
only materialise to a rather limited extent since the
administration of publishing rights is mainly carried
out by
the
important mechanical and performance rights). The
collecting societies grant, on the basis of prevailing legis-
lation, licences on non-discriminatory terms and agree on
royalties with publishers, authors and composers. The
Commission also considers that, contrary to some third
parties’ concerns, the concentration would not lead to
the bypassing of the collecting societies by the majors
as there is no sufficiently concrete evidence for such a
strategy.

III. CONCLUSION

The Decision concludes that the proposed concentration
does not create or strengthen a single or collective
dominant position in the national markets for recorded
music, licences for online music, or distribution of online
music as a result of which effective competition would be
significantly impeded in the common market or in a
substantial part of
it. The Decision further concludes
the transaction does not have as its object or
that
effect the coordination of the competitive behaviour of
venture’s parent
the
and
in the music publishing markets. Conse-
Bertelsmann,
quently,
concentration
compatible with the Common Market and the EEA
Agreement,
in accordance with Articles 2(2) and (4)
and Article 8(2) of the Merger Regulation and Article
57 of the EEA Agreement.

the Decision

companies,

declares

Sony

joint

the