An EU court yesterday overturned the European Commission's approval of a merger between the music units of media giants Sony and Bertelsmann AG that created the world's second-largest record label.
This forces Sony and BMG to ask the EU to clear the deal again based on market conditions, said EU spokesman Jonathan Todd. However, Sony BMG said it did not believe the judgment undermined its business.
The Court of First Instance -- the EU's second-highest court -- backed a challenge by the independent record label group Impala, saying regulators did not properly show in 2004 that the new company would not have a monopoly position in two ways. Either one would be enough to strike down regulatory approval.
"The commission did not demonstrate to the requisite legal standard either the nonexistence of a collective dominant position before the concentration or the absence of a risk that such a position would be created as a result of the concentration," a court statement said.
Todd said Sony and BMG will have to resubmit their applications for antitrust clearance.
"We will study the ruling carefully, but it is clear that we will have to re-examine the merger," he said.
Sony BMG said it would discuss its next steps with the commission.
"Today's judgment does not affect the validity of the Sony BMG joint venture, which has been up and running since August 2004," Guetersloh, Germany-based Bertelsmann said.
The European Commission had unconditionally approved the 50-50 joint venture between Japan's Sony Music and BMG, the German media giant's music unit, in July 2004 after finding insufficient evidence the deal would harm consumers.
The deal brought Sony artists like Aerosmith, George Michael and Barbra Streisand and BMG's Avril Lavigne and Elvis Presley under one roof. It also reduced the number of music "majors" from five to four. Sony and BMG argued they needed to join forces to deal with declining CD sales and the threat from illegal downloading on the Internet.
Regulators had assumed that there was no record industry monopoly because there were a wide variety of products on the market and the absence of open disputes between the five largest companies.
But the court found they did not properly support a theory that promotional discounts ultimately prevent a monopoly occurring.
"The elements on which that argument was founded were incomplete and did not include all the relevant data," it said.
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