It's the hottest topic in the music business: Universal has offered independent labels first refusal on buying €250m-worth of assets - including Virgin Records, EMI Classics, Co-Op and Sanctuary Records.
The chance to purchase these divestments - made up of €150m in owned repertoire and €100m in licence, compilation and distribution rights - have been offered to IMPALA members by Universal boss Lucian Grainge. He wants just one crucial thing in return: the public backing of his company's proposed £1.2bn buyout of EMI.
Some, such as AIM's Alison Wenham and Bella Union's Simon Raymonde, remain unimpressed and strongly against the deal. Others such as Mute's Daniel Miller, Domino's Laurence Bell and IMPALA co-president Patrick Zelnik, have applauded Grainge's offer to the indies.
Here, Music Week grills the co-founder of one of independent music's biggest services and label operators, PIAS - who for the first time goes on the record over his support for Grainge's proposal.
Kenny Gates was one of the 56% of IMPALA board members who last week voted in approval of Grainge's offer - which would appear to lock Sony and Warner out of bidding for the assets. However, IMPALA requires a two-thirds majority to change its public stance, and so continues to refuse to negotiate with Universal.
Here, Gates explains why he finds Grainge's offer quite so attractive - and why, in his eyes, shaking hands with the major labels' most powerful exec would be a smart move by the indies...
Why do you feel positive about Lucian Grainge's offer?
In every merger that we independents have fought against in the past, the parties wanting to merge never took us into consideration - let alone have engaged in a dialogue to listen to our concerns or our needs.
Lucian’s manifesto makes sense because for the first time parties for a proposed merger have come to the independents offering to listen and act upon our concerns. By offering a first look to the independents in the divestments Universal has to make has to be seen as a positive as it potentially can reinforce our sector.
In Lucian’s letter there are other meaningful commitments which are met with scepticism by some IMPALA members and by the regulators because difficult to enforce and monitor [these include talk of not manipulating Universal's market share at radio and retail]. But the fact they are there, in writing, shows an indubitable opening of goodwill from Universal to address some of the concerns we all have - and a potential collective way to remedy a market that has already suffered so much.
To me the problem before the merger issue is and was EMI itself – and the fact such a flagship for our industry has been in the hands of financial institutions just there to make a return on (too big of an) investment. These companies are run by people who are not at all concerned about the health of our industry or its long-term outlook. In short they are not concerned about re investing in our cultural industry and its long-term health.
So ever since EMI has been taken over and lying in the hands of witch doctors, we all knew something drastic was going to happen but we didn’t know WHAT. Basically it boils down to either Universal or Warner buy EMI - Sony having made the choice of investing in buying the publishing arm (Sony/ATV & EMI Publishing).
Universal are already extremely dominant anyway but at least they are music people. Of course they are primarily interested in remaining the premier force in the industry but Lucian appears genuine in wanting and needing a better and healthier music industry. Warner has great people - but are its new owners not a new kind of Terra Firma?
I am of the opinion and have been since a few months now that the merger will go through but with very strong remedies. [PIAS] is one of the companies having welcomed positively Lucian’s offer to divest to the independents looking at a global package trying to remedy things like access to market while I know that behavioural remedies are not the quintessence of EU regulators’ tools.
I want to be pragmatic: I’d rather the independent community including [PIAS] to benefit of this defining moment in the history of our industry than other parties.
Do you think doing this deal could save certain independent music businesses from going under?
I can’t answer that question. My point is that if the merger goes through and the divestments are on a first look for the independent sector, they will be stronger in offering an alternative to the new Universal. Rather than [assets] going - like has been the case in previous mergers - to a pension fund or a banker, whose mission is not to develop new acts and genres but to increase ROI.
Can the independent sector really be stronger with a dominant Universal/EMI in the market?
No-one can borrow from the future, but everyone needs to be realistic. There were five majors, now there’s three (EMI being in a kind of dormant position for quite a while).
Regulatory processes are not necessarily indie-friendly. If the merger is not blocked, are we better off with remedies to the Independent or remedies going to the two other majors? And, hypothetically, what if Warner sells to Sony in future? Where does that leave us?'
Arguments we've heard against the deal include: Universal dominating at radio/retail, its sway over new digital services and that, combined with Sony, they would force a duopoly in the market. Do you have any fears over a combined Universal/EMI?
Of course we have fears - that’s why the remedies have to be very strong and enforceable. Media’s access is a real problem but how do you want to force record companies, be it Sony or Universal, to impose larger and more diverse playlists to radio networks? What authorities or regulatory processes could decide the panel of playlists of radios or TV’s or supermarkets choices?
The majority of IMPALA’s board now appear to back the deal (with the right concessions going to the independent sector). However, the group won’t alter its oppositional stance until two-thirds of the group agree. Should the body reverse its public position?
When you enter into an organisation representing the vast majority of people and companies acting in the same sector, the only way forward is to have gatekeepers. The 2/3rd majority system of Impala has been created to avoid tension in a 51/49 situation. 99% of the decisions are taken unanimously but when affairs are merger cases it is always a bit more complex.
Every member should understand and respect this gate keeping and [PIAS] being one of a handful founders of IMPALA even more so. The situation was not different when we voted in favor of suing the EU for their positive decision on Sony/BMG with among the members very strong opposite opinions. I’d like to remind you that we won this court case, that ultimately we lost it for procedural reasons and that the EU regulatory processes have been changed to be more democratic thanks to IMPALA.