EU Warns It Will Act Tough On BMG Pub Bidders

With Viacom joining Warner Music and Universal Music Group among those bidding for the music publishing arm of Germany's Bertelsmann, European regulators have warned that any successful takeover would have to comply with merger rules.

The European Commission, the EU's anti-trust authority, will have the ultimate say over whether any bidder is able to assume control of BMG Music Publishing, which could be worth up to $1.7 billion.

"The issue is whether the new venture will represent a dominant position in the market for music publishing in Europe," said Commission spokesman Jonathan Todd.

"The onus is on the parties concerned to prove that their joint venture meets the standards of the EU's merger regulation. The wording of the regulation states that they have to prove that it would not 'significantly impede effective competition'." Todd added that the Commission would nonetheless have to conduct a thorough investigation of the market, the bid, and the potential dangers for the sector.

Under EU regulations, a merger must be blocked if it creates a dominant position, as it would likely result in higher prices, reduced choice and less innovation. Dominance, in its different forms, will remain the main scenario: the central question is whether sufficient competition remains after the merger to provide consumers with sufficient choice.

If a music company succeeds in its initial bid for BMG Music Publishing -- currently ranked third in the world -- then it would cut the number of major music publishers from the existing five to four. Bertelsmann has indicated that any buyers will have to bear the risk of getting regulatory clearance from the Commission.

For Viacom, the issue is different: its ownership of MTV raises concerns that the music channel will favor BMG songs on its network. Its interest could effectively expand any Commission inquiry into the realm of music television channels.

In the wake of its EU Court defeat over the 2004 merger of Sony and BMG, the Commission is also expected to be far stricter in scrutinizing such a merger. Indeed, when the Court ruled in July that the Commission had not properly followed procedures in clearing the Sony BMG link up, it effectively forced the executive to re-assess the merger -- meaning that there is still a question mark over whether the separate Sony BMG recorded music joint venture is even legal.