Sony/ATV’s acquisition of EMI Pub raises questions

Friday, April 20, 2012

 

 

It would have been the perfect picture to symbolise the end of a certain world and the beginning of a new era for the music industry: the chief executives of EMI Music Publishing (Roger Faxon), Sony/ATV (Marty Bandier), Universal Music Publishing (the newly crowned Zach Horowitz, whose appointment as chairman/CEO of the company was announced that day), Warner Chappell (Cameron Strang), Kobalt (Willard Ahdritz) and BMG Chrysalis (Hartwig Masuch).

These folks were all in the same room indeed but never got on the same picture. They all had the occasion to walk on stage to get their pictures taken while picking up accolades at the ASCAP Pop Awards show, held in Los Angeles on April 18 and organised by the US performing rights organisation, but never together. Yet the interaction between all of them is going to reshape the world of music publishing.

The news that the European Commission had cleared the $2.2 billion proposed acquisition  of EMI Music Publishing by the consortium of investors led by Sony/ATV had not been made public yet, but there was already a sense that the tectonic plates in music publishing had already moved.

Faxon and EMI’s whole US creative team led by John Plat took the stage to celebrate their 11th year as Ascap’s Pop publisher of the year. Probably for the last time. But it was a well deserved celebration and a reminder that EMI Music Publishing was a tremendous creative force in the industry.
Now the power at EMI will be shifting to Bandier. Marty is a very sharp operator, and a very good dealmaker an American publisher tells me, but Faxon did a great job at EMI. He had a good understanding of the big picture and he has been able to really grasp the importance of the creative side of this business.
Now that the deal has been cleared, it is time to ask a few questions about what will happen next. First, the Commission’s decision could still be challenged in court by some of the parties opposing the merger. Sony/ATV’s promise to dispose of a few catalogues (among them   Virgin Music Publishing UK, Virgin Europe, Virgin US, and Famous Music UK, which Marty Bandier acquired when he was running EMI) has certainly helped soothe the concerns of the regulators and allowed the process to go through without having to go into a full investigation.
EU Competition Commissioner Joaquin Almunia described the Virgin and Famous catalogues as valuable and attractive catalogues containing bestselling titles as well as works of successful and promising authors. He added, I am therefore satisfied that the competitive dynamics in the online music publishing business will be maintained.
This simple (simplistic?) comment shows how lightly the investigation process has been carried through by the Commission. The new entity will weight 31 to 33% of the global publishing business and the Commission is satisfied with the selling of catalogues worth a few million euros without looking further on the deal? The magnitude of the transaction would have certainly warranted a full investigation focusing on the impact that the new combined player would have had on the market.
Last week, an investor’s document unveiled by the New York Times suggested that about 60% of EMI’s work force would be lost once the merger completed, raising concern among staff at both EMI and Sony/ATV. It prompted Bandier to send an email to staff saying that the document reflected a situation from a while ago and did not reflect today’s situation. Bandier also said that we was going to try to keep the best people from both companies.
This process will take time and that will have a crippling effect on the way the company will operate for a while, according to people who are familiar with these processes. Some people I spoke to in Los Angeles regard the acquisition of BMG Music Publishing by Universal as a possible benchmark in terms of integration and disruption, with the difference that it was a straightforward acquisition followed by a merger. This will take at least two years to settle, said a publisher.
Because it is a consortium of investors buying into EMI, Sony/ATV cannot integrate the new catalogue as if it were a simple acquisition, the way Universal did when they acquired BMG. Sony/ATV will administer the catalogue against an administrative fee. This raises several issues. One of them being — who sets the fee? Is Marty Bandier going to make a deal with Bandier Marty?
And, as all publishers know, how do you keep the value of the catalogue growing and not devaluing? The only way to do it is, of course, to have the best team placing songs, but it is also about rejuvenating the catalogue through new signings. And there again, if it happens, who will make the decisions as to which act goes where, Bandier Marty or Marty Bandier? And will the Sony/ATV’s cheque book compete with EMI’s?
Meanwhile, there will certainly be a wave of catalogues, currently administered by EMI that will not feel at ease in the new structure and look for new partners. Most admin deals include an ownership clause that gives the opportunity to opt out if there is a change in ownership.
Then there is the state of the European digital licensing deals. EMI, through CELAS, is going through a jv between PRS for Music and Gema in Germany, while Sony/ATV has a central licensing deal with Gema.  The consensus is that the deals will not change in the coming future, until probably the deals expire. It is quite certain that Marty Bandier will carefully evaluate the pros and cons of each deal and see how he can extract the best deal for both catalogues. And any PRO that will manage to capture this deal will probably be well off for a while in the same way that Sacem is guaranteed a certain level of business with its deal with Universal Music Publishing.
A publisher present at Ascap Expo was smiling when he said to me that he was planning to be quite busy this year and the years to come picking up all sorts of publishing catalogues searching for admin deals. Another surmised that BMG Rights Management, Kobalt and a few other publishers would be extremely busy pitching these catalogues in the months to come. It’s a great time to be an independent publisher, said a publisher with a smile.