July 13, 2006

Indies savor victory over majors in Sony BMG case

By Adam Pasick

LONDON (Reuters) - Independent music labels, who have seen
their market share come under pressure in the last decade as
the industry goliaths merged, have struck back.

After a lengthy court battle, a European court surprised
just about everyone by annulling the European Union's approval
of the 2004 Sony BMG merger, which created the world's
second-biggest music company.

"It's a landmark victory for the small players in the
industry who together amount to the largest constituency," said
Alison Wenham, chief executive of the Association of
Independent Music. "I think inevitably it's going to put severe
pressure on any other majors' attempts to merge in order to
increase their market power."

Independent labels, home to artists like the White Stripes,
Arctic Monkeys and Franz Ferdinand, typically lack the
geographical breadth and marketing clout of their larger
rivals. Taken together, the 2,500 independent labels have a
slightly larger market share than Universal Music, the industry

The EU's Sony BMG ruling was challenged by Impala, an
umbrella group representing independent labels and publishers,
and its success has not only called the Sony BMG deal into
question but put a likely freeze on merger talks between EMI
and Warner Music, the third- and fourth-ranked majors.

"The indies have really punched above their weight," said
Paul Brindley, managing director of the digital music
consultancy MusicAlly. "It shows that despite having very
scarce resources, the indie labels can have a major impact and
make their voices heard."

It was not the first victory for independent music groups.
In 2000, lobbying from Impala and other groups helped torpedo
an earlier proposed EMI-Warner Music merger. But until
Thursday's ruling, the industry looked to be heading toward
three majors, down from six in 1998.

What will happen next -- for Sony BMG, for Warner and EMI,
and for the industry -- is far from clear.

The European Commission has two months to appeal the ruling
by the European Court of First Instance, or it can re-examine
the Sony-BMG deal based on the court's instructions and the
current market conditions.

Either option would have an uncertain outcome and would
take many months. In the meantime EMI and Warner Music are
unlikely to pursue a deal in such an unpredictable regulatory

With three of the four majors thrown into chaos --
Universal Music is the exception -- it was a day for the indies
to savor their David-versus-Goliath victory.

"We have proved that, by acting collectively, we can
challenge the unchallengeable," said Impala President Patrick