EN This text is made available for information purposes only. A summary of this decision is published in all Community languages in the Official Journal of the European Union. Case No COMP/M.4404 – Universal/BMG Music Publishing Only the English text is authentic. REGULATION (EC) No 139/2004 MERGER PROCEDURE Article 8 (2) Date: 22/V/2007 COMMISSION OF THE EUROPEAN COMMUNITIES Brussels, 22/V/2007 C(2007) 2160 PUBLIC VERSION COMMISSION DECISION of 22 May 2007 declaring a concentration to be compatible with the common market and the functioning of the EEA Agreement (Case No COMP/M.4404 – Universal/BMG Music Publishing) Commission Decision of 22 May 2007 declaring a concentration to be compatible with the common market and the functioning of the EEA Agreement (Case No COMP/M.4404 – Universal/BMG Music Publishing) (Only the English text is authentic) (Text with EEA relevance) THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Community, Having regard to the Agreement on the European Economic Area, and in particular Article 57 thereof, Having regard to Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings1, and in particular Article 8(2) thereof, Having regard to the Commission's decision of 8 December 2006 to initiate proceedings in this case, Having regard to the opinion of the Advisory Committee on Concentrations, Having regard to the final report of the Hearing Officer in this case, WHEREAS: I. INTRODUCTION 1. On 3 November 2006, the Commission received a notification of a proposed concentration pursuant to Article 4 of Regulation (EC) No 139/2004 ("the Merger Regulation") by which the undertaking Universal Music Group Inc. ("Universal") acquires within the meaning of Article 3(1)(b) of the Merger Regulation sole control of the whole of the undertaking BMG Music Publishing ("BMG") which currently forms part of the Bertelsmann group, by way of purchase of shares and assets. Universal and BMG are collectively referred to in this decision as "the parties" with Universal alone being the "notifying party". 2. After examination of the notification, the Commission has concluded that the operation falls within the scope of the Merger Regulation and threatens to significantly impede effective competition in the common market. It therefore decided on 8 December 2006 to initiate proceedings pursuant to Article 6(1)(c) of the Merger Regulation. 1 OJ L 24, 29.1.2004, p. 1 2 3. On 15 March 2007, Universal offered commitments with a view to rendering the concentration compatible with the common market. These commitments were modified on 26 March 2007 and improved on 30 March 2007. The final version of the commitments was submitted on 23 April 2007. 4. The Commission has concluded that the commitments entered into by Universal remove the serious doubts as to the compatibility of the notified operation with the common market. The concentration is therefore to be declared compatible with the common market and the functioning of the EEA Agreement pursuant to Articles 8(2) and 10(2) of the Merger Regulation and Article 57 of the EEA Agreement. II. THE PARTIES 5. Universal is a 100% subsidiary of Vivendi SA ("Vivendi"). It is an international media company and its world-wide activities include music recording and publishing. Universal is active in music publishing through Universal Music Publishing Group ("UMPG"). 6. BMG is part of the Bertelsmann group ("Bertelsmann") which is an international media company. BMG comprises the worldwide music publishing and production music activities of Bertelsmann. III. THE CONCENTRATION 7. On 6 September 2006 Vivendi and Universal signed a share purchase agreement with Bertelsmann AG and seven further companies within Bertelsmann for the acquisition of BMG. As a result of the transaction Universal will acquire sole control of BMG. The transaction therefore constitutes a concentration within the meaning of Article 3(1)(b) of the EC Merger Regulation. IV. COMMUNITY DIMENSION 8. Vivendi and BMG have a combined aggregate worldwide turnover of more than EUR 2 500 million (EUR 19 484 million for Vivendi in 2005 and EUR […]* for BMG in 2005). The aggregate Community wide turnover of each party exceeds EUR 100 million (EUR […]* for Vivendi in 2005 and EUR […]* for BMG in 2005). 9. The aggregate turnover of all the undertakings concerned exceeds 100 million in more than three Member States, namely France (Vivendi: EUR […]*, BMG: EUR […]*), Germany (Vivendi: EUR […]*, BMG: EUR […]*), Italy (Vivendi: EUR […]*, BMG: EUR […]*) and the United Kingdom (Vivendi: EUR […]*, BMG: EUR […]*). The aggregate turnover of each of Vivendi and BMG is more than EUR 25 million in all of these Member States. * Parts of this text have been edited to ensure that confidential information is not disclosed; those parts are enclosed in square brackets and marked with an asterisk. 3 10. The Parties do not achieve more than two-thirds of their turnover in one and the same Member State. The notified operation therefore has a Community dimension pursuant to Article 1(3) of the Merger Regulation. V. RELEVANT MARKETS 1. Relevant product markets 11. Both parties are active in the music publishing business. The Commission identified in the case Sony/BMG2 that the main activities of a music publisher comprise the discovery and identification of new talented songwriters with a view to acquiring and commercially exploiting their intellectual property rights and the provision of financial and promotional support to authors, arranging for music recordings and supporting their dissemination. 12. Music publishing is the exploitation of intellectual property rights of song writers (in this decision the term “authors” will be used to cover both lyricists (text) and composers (music)). Generally, authors transfer copyright of their works (referred to in this Decision as "publishing rights") to music publishers and receive from the latter payments of advances and a share of the royalties generated by the commercial exploitation of their works. The term "transfer of rights" refers both to the assignment and licensing of copyright.3 13. While the Commission in past merger cases mainly focussed on the music publishing market on which publishers grant licences to right-users, such as to producers of movies, record companies or radio stations, it appears that another market level to be taken into consideration would be the one covering the supply of publishing services to authors. 14. The activities of a publisher are thus twofold: on the one hand, the downstream activity of exploiting the works of authors under contract, inter alia by means of licensing the rights through the collecting societies, and on the other hand an upstream activity of signing authors and providing them with financial and marketing support as a counterpart to the transfer of their musical works. It appears that 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). 2 Case No COMP / M.3333 – Sony/BMG, 19 July 2004. 3 An assignment of copyright is the absolute (except for moral rights) transfer of the copyright ownership from one person (an "assignor") to another (an "assignee"). Usually, an assignment contains no restrictions as to the subsequent exploitation of the work by the assignee. A licence of copyright is a contractual right or permission whereby the copyright owner (the "licensor") allows another person (the "licensee") to exercise particular rights under copyright for a specified term. Unlike an assignment, a licence is not an absolute grant of rights and legal title does not pass to the licensee. It is a contractual right that usually ends on expiry of the term or upon termination of the licence. On expiry or termination of the licence, all rights granted under it, including under any sub-licences, revert to the licensor. The precise conditions under which copyright is transferred may differ in each country. In the Decision, the term "transfer" will be used encompassing both the assignment and the licensing of rights by authors to publishers / collecting societies while "licensing" will mainly refer to the exploitation of these transferred rights by publishers / collecting societies granting licences to users. 4 1.1 Markets for the exploitation of music publishing rights (downstream market level: publisher - user) 15. Music publishers exploit the rights received from authors by granting licences to right- users. The right-users encompass all sectors where music is required (CDs, films, advertising, radio, TV, internet and mobile communications)4. The users pay royalties for the use of these musical works. Depending on the specific types of rights, the licences are granted to right-users either by the publishers directly or via collecting societies. Combination of recording and publishing 16. Publishing rights (i.e. the rights originally held by authors) need to be distinguished from so-called "neighbouring rights" or "recording rights" which mainly protect the individual interpretation of a song by a performing artist. While the publishing rights of a song are with the authors and their publishers, the recording rights are with the recording companies and the singers who normally transfer them to their record companies. 17. In order to legally use a song, for example on the radio, or for downloading services on the internet, a music user in most cases has to acquire a licence for both the publishing right and the recording right. The lack of either of these prevents legal use of the song. Types of publishing rights 18. The following different types of rights5 exist, each of which might constitute a distinct product market as they are commercialised though distinct channels, address different needs and apply for different uses: i. mechanical rights: for reproduction of a work in a sound recording (e.g.