European Commission regulators have launched an investigation into whether Universal Music’s Qatar-backed bid to buy EMI's recorded music unit for US$1.9bn will be bad for music consumers.
The EU said it was concerned about the combined entity's high market share, almost twice the size of its nearest rival in Europe, and increased market power.
"The commission needs to make sure that consumers continue to have access to a wide variety of music in different physical and digital formats at competitive conditions," EU Competition Commissioner Joaquin Almunia said in a statement.
The move comes just days after it was revealed Qatar Holding had increased its stake in Vivendi, Universal Music’s Paris-based parent company to two percent, valuing its share at around €354m (US$468.81m).The European Commission said it would now decide by August 8 whether to clear or block the deal. Universal said it had always expected the Commission to carry out an in-depth investigation.
"We will continue to co-operate fully with them and look forward to a successful resolution of the process," it said in a statement.
According to a source, Universal decided not to offer concessions to the EU watchdog during its preliminary assessment of the deal, but would consider doing so in the second phase of the review.
EMI owner Citigroup took control of the record label, whose artists have included the Beatles, Queen, Coldplay and Katy Perry, after its previous owner Guy Hands' buyout shop Terra Firma defaulted on loans owed to the investment bank.
The commission has asked rivals and consumer groups whether the Universal deal, and a Sony-led plan to acquire EMI's music publishing business for US$2.2bn, will result in higher prices and also shut out competitors.
A questionnaire sent by the European Commission and seen by Reuters asked whether artists would be able to switch record labels easily and at a reasonable cost once the two deals were completed.
Both Universal and the Sony-led group were expected to argue that strong competition in the music business meant their acquisitions would not restrict competition and that online music distributors such as Apple and Amazon have more power in terms of pricing.
Impala, a lobbying group for independent music companies, has urged EU regulators to block both deals.
Rival Warner, which had also sought to buy EMI's recorded music, was expected to warn the commission about the risks of an overly concentrated market.
* With agencies