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UK competition regular says Sony’s AWAL deal raises competition concerns, leaving the major “perplexed”

By | Published on Wednesday 8 September 2021


The UK’s Competition & Markets Authority has ruled that Sony Music’s purchase of the AWAL artists services business raises competition concerns because it “could lead to worse terms for artists and less innovation in the music sector”. As such, the major must now present proposals for how it will address the regulator’s concerns, otherwise a more in-depth investigation will be launched into the transaction.

Sony announced that it was buying the recordings division of Kobalt – consisting of AWAL and a neighbouring rights agency – back in February in a deal worth around $430 million. The transaction was part of Kobalt’s plan to refocus its energies on its original song rights administration operations. For Sony, it was the latest in a series of acquisitions to boost the distribution and label services side of its business.

All the majors have grown their label services operations in recent years, of course, but none more so than Sony, mainly via its The Orchard unit. In AWAL it got a services business where the focus is very much on working directly with artists and their management teams on record releases, whereas for The Orchard – although it does that too – the core business is providing services to independent labels.

The UK competition regulator announced it was launching a phase one investigation into the deal in May, setting out to assess whether this latest consolation in the music distribution and label services sector raised any competition law concerns. Yesterday it concluded that it possibly does.

Alluding to Sony and the other majors growing their distribution and services businesses in recent years, the CMA said: “The wholesale distribution of recorded music in the UK is highly concentrated at present, with the three major labels accounting for the vast majority of the market. AWAL is an important emerging player, widely recognised for its innovative business model. It is one of the few suppliers outside the major labels that has succeeded in gaining a meaningful foothold in the market and has grown significantly in recent years”.

“As part of its investigation”, it added, “the CMA found evidence that – if the deal had not gone ahead – Sony and AWAL could also have competed more strongly with each other in future. AWAL was well-placed to grow its business even further in the coming years. There is also evidence that Sony intended to expand The Orchard’s offering, focussing more on the emerging pool of smaller artists, which would have led it to compete more with AWAL”.

And for a competition regulator, more competition is always a good thing, of course. “This competition between Sony and AWAL could have benefited artists by improving the terms of their deals with distributors, potentially allowing them to keep a larger share of their earnings and to have more ownership of their music rights”, the statement went on.

“The CMA is therefore concerned that the loss of an innovative competitor like AWAL could, despite continued presence of the other major labels, lead to worse terms for artists and less innovation in the music sector”.

Expanding on all that, Colin Raftery, Senior Director at the CMA, said: “The music industry forms an important part of the UK’s flourishing entertainment sector, and it’s essential that distributors continue to compete to find new and creative ways of working with artists. We’re concerned that this deal could reduce competition in the industry, potentially worsening the deals on the table for many music artists in the UK, and leading to less innovation across the industry”.

Sony must now respond to the regulator’s concerns and propose remedies to address them, otherwise the CMA will begin a more in-depth phase two investigation. That could result in the regulator either blocking the deal – in the UK at least – or demanding its own remedies to overcome any competition issues.

A spokesperson for Sony yesterday said the CMA’s conclusions were perplexing and based on a misunderstanding of the sector, adding that other regulators elsewhere in the world had reviewed and approved its AWAL deal.

“This decision by the CMA is perplexing and based on an incorrect understanding of AWAL’s position in the UK”, the major said. “We strongly believe this transaction is unambiguously pro-competitive and that our investment in AWAL is key to its continued growth, and future success”.

“Every other regulatory body that has reviewed this transaction has agreed with our view and approved it quickly”, the spokesperson added. “We will continue to work closely with the CMA to resolve any questions they might have”.

However, many people in the independent music sector reckon the CMA’s concerns are legitimate and welcomed the regulator’s initial conclusions about the AWAL deal.

Speaking for that community, Paul Pacifico, CEO of the Association Of Independent Music, told reporters: “The CMA raise some crucial questions. It will be important to see Sony’s response and to consider the impact for competition in music to ensure a market that enables healthy choices for artists and entrepreneurs”.

We now await Sony’s formal response to the CMA’s concerns.