LONDON, July 20 (Reuters) - Independent record labels, freshly emboldened by their victorious European Court challenge to the Sony BMG recorded music merger, on Thursday scolded the industry for contemplating consolidation in music publishing.

 

Their concerns arise as German media group Bertelsmann [bERT.UL], half of the Sony BMG joint venture that is mulling its next step with European antitrust regulators, invites a small group of finalists to bid for its BMG Music Publishing arm, a list that reportedly includes most of the music majors.

 

Competition lawyers were divided over whether last week's European Court ruling, which annulled EU approval of the Sony BMG deal, could be interpreted to extend to music publishing.

 

 

They generally agreed, however, that there would probably be a lengthy regulatory review if Bertelsmann opted to sell BMG Music Publishing to one of the majors, a sign that the auction could be tipped in favour of other bidders.

 

"A trade sale of any major publisher to another would strengthen existing collective dominance in publishing and the functioning of the collective societies, online licensing and synchronisation markets," said the independents' trade group Impala, whose 2,500 members represent such musicians as Franz Ferdinand and Arctic Monkeys.

 

"Impala takes the view that any such move would be unable to obtain regulatory approval."

 

Among the shortlisted suitors for BMG Music Publishing, which owns the copyrights to thousands of songs by Coldplay, Nelly and other artists, are Vivendi's (VIV.PA: Quote, Profile, Research) Universal Music, Warner Music (WMG.N: Quote, Profile, Research) and EMI Group (EMI.L: Quote, Profile, Research) teamed with private equity firm KKR, according to Thursday newspaper reports.

 

Bertelsmann told Reuters earlier this week that it did not think its auction would be affected by the European court ruling and that it would invite industry rivals to participate in a second round of bidding this week.

 

BMG Music Publishing is expected to fetch at least 1.5 billion euros ($1.9 billion), according to industry analysts. Bertelsmann is selling the unit to help fund a buyback of a 25 percent stake in the company from Belgium's Groupe Bruxelles Lambert (LAMBt.BR: Quote, Profile, Research).

 

Some lawyers agreed with Bertelsmann's assessment of the court decision, which did not specifically address music publishing, because of the divergent ways that the recording and publishing industries operate.

 

Whereas major music companies sell CDs at wholesale prices to retailers, the copyrights they own are licensed by collection societies, some of whom fix the prices for other bands to cover the songs, play them live or use them in movies or TV shows.

 

"The judgment concerns some of the same companies, but publishing is just different," said one Brussels-based attorney, who asked not to be named.

 

 

"Publishing is not characterised by collective dominance," the attorney said. "If (BMG Music Publishing) gets sold to another industry player, then I think there will be (an in-depth review by the European Commission), but I think the deal would go through."

 

Others, however, see roadblocks to music publishing consolidation thrown up in the Sony BMG ruling that would prevent any of the majors from buying BMG Music Publishing.

 

The court said shrinking the recorded music market to four players from five -- as happened when Sony Music merged with BMG in 2004 -- could result in a collectively dominant position that required more scrutiny than the EU gave it. The same could be said in publishing, some lawyers said.

 

"In my own opinion, the court's decision will effectively prevent EMI and Universal from bidding for BMG Music Publishing as the combined arm would have a remarkable market share," music attorney Ben Challis said.

 

"The original Sony BMG merger excluded both Sony's and BMG's music publishing arms, so it is most unlikely that Sony/ATV could bid for BMG," he added. "It is equally as unlikely that Warner/Chappell would find any merger or acquisition with BMG approved after the court's decision."

 

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Impala Turns Attention To BMG Publishing

 

European independents labels group Impala warned Thursday (July 20) that if BMG Publishing is sold to another music major, the move would merely tighten the effective cartel in the global music market.

 

"A trade sale of any major publisher to another would strengthen existing collective dominance in publishing and the functioning of the collective societies, online licensing and synchronization markets," Impala said in a statement.

 

In the wake of last week's EU court ruling that the European Commission was wrong to clear the 2004 merger between Sony and BMG's recorded music activities, Impala said it was confident such a sale would not obtain regulatory approval.

 

Impala president and head of Naive records Patrick Zelnik said the court ruling would make it almost impossible for BMG Publishing to be sold. "It would be foolhardy to add BMG Publishing to the mix," he said.

 

Impala lodged the EU court appeal against the Commission decision to clear the Sony BMG merger.

 

But Impala vice president and managing director of Epitaph Europe Hein van der Ree said the challenge also aimed to head off the attempted sale of BMG Publishing. "Our appeal was not just about Sony BMG or EMI/Warner. It was about concentration right across the board in music. In today's climate, the question is whether merger talks are a reasonable use of shareholders' money," he said.

 

Speculation is rife that Bertelsmann may have to restructure through asset sales to repay the debt it built up paying off Belgian minority shareholder Groupe Bruxelles Lambert (GBL) for €4.5 billion ($5.6 billion). BMG Music Publishing holds rights to songs from artists including Christina Aguilera, Nelly and Coldplay.

 

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