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Given the loss of the Parlophone brand, along with the bulk of its roster and catalogs in Britain and the European territories, will Grainge shift the focus of his revitalization plan to Virgin?

I.B. BAD ON THE FORCED SACRIFICE OF PARLOPHONE

Universal Grinds Toward EC Approval of the
EMI Merger, but at What Cost?
One intriguing question as Universal enriches its concessions package by EC mandate is: who will bid on Parlophone? There will presumably be several interested parties, in that Parlophone is the most valuable asset UMG will be forced to divest—a label with a storied history that is the meaty center of EMI’s present-day U.K. operation.

Considering the four entities other than UMG that made offers on all or part of EMI, the most obvious potential strategic bidder is the well-funded, acquisitive BMG/KKR, headed by Hartwig Masuch, which is reportedly talking to Universal about the acquisition—unlike Warner Music, which has most likely ruined its chances by opposing the merger. Will Sony sit this one out after picking up 40% of EMI Music Publishing? And will Ron Perelman’s MacAndrews & Forbes—the lone financial player in the EMI sweepstakes—find the idea of going after a portion of the company appealing? That scenario seems highly unlikely. Neither would it make much sense for the financial players who bid on WMG, Ron Burkle and the Gores brothers.

Even without the untouchable Beatles, the Miles Leonard-led Parlophone is loaded with bankable talent. The current roster includes such acts as Coldplay, Gorillaz, David Guetta (who has a newly signed worldwide deal), Blur, Hot Chip, the Chemical Brothers and Tinie Tempah, as well as the catalogs of David Bowie, Queen (which UMG will reportedly also hold onto), Radiohead, Duran Duran, the Hollies, Kraftwerk and the Pet Shop Boys.

Parlophone was expected to be the centerpiece of Lucian Grainge’s revitalization plan, but by breaking it off from the rest of EMI’s U.K. operation—a move that would inevitably lead to sizable job losses in the name of economies of scale should a strategic player buy the label—the EC may have played “Taps” for EMI’s British operation as it now exists.

This EC-mandated divestment not only changes the economics of the deal for UMG, it also dramatically changes the game for Parlophone artists, who will remain on Parlophone in the U.K. and Europe but will be on UMG-EMI everywhere else. The Commission’s demand that Universal sacrifice the European rights of these acts calls into question the regulatory body’s basic understanding of the music business. Does the EC not realize what enormous complications the affected acts and their managers will face because of this questionable decision?

In a recent commentary, veteran attorney Peter Paterno took the Commission to task for forcing Universal to “sell off artist contracts for part of the world [so that] the artist can't mount an effective worldwide campaign to sell his records and is in business with someone he doesn't know.” And, as Paterno pointed out, Universal can’t be sued by the acts for what a government body forced it to do.

Paterno’s points have resonated strongly throughout the industry, and sources inside EMI believe this saga will play out well past the merger. Not surprisingly, managers with acts on EMI are deeply concerned about what the new world order will look like. Given the loss of the Parlophone brand, along with the bulk of its roster and catalogs in Britain and the European territories, will Grainge shift the focus of his revitalization plan to Virgin, which has considerable cachet in its own right as a U.K. brand?

Wonderers are wondering how UMG’s coup in persuading several U.K. and European indies to come on board impacted the EC decision-making process. Likewise, has the lobbying of Warner and Martin Mills made an impression on EC regulators

On a related subject, consumer advocate Gigi Sohn and Warner’s Edgar Bronfman made use of stats from European streaming service Deezer in their testimony during the June 21 Senate antitrust hearing on UMG-EMI, and last week, Len Blavatnik’s Access Industries took a stake in the company. Theorists are theorizing that this is more than mere coincidence. And what is Blavatnik’s play here? Will he provide Deezer with exclusive content, and if so, to what end?

Rapidly rising X Factor U.K. alumna Cher Lloyd shows early signs of becoming the first breakout act for L.A. Reid’s Epic, while Simon Cowell could notch another win on the heels of One Direction, which was hatched from the same show. Cowell is preparing for the make-or-break second season of The X Factor in the U.S., during which he’ll go head to head with The Voice. Some believe the competition could spell disaster for both shows.

Names in the rumor mill: Max Hole, Dave Holmes, Jeff Jones, Richard Branson, Roger Ames and Ken Berry.
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