The CMA has found that Sony Music’s completed purchase of AWAL raises competition concerns, following a phase one investigation.
Sony Music swooped for the independent artist and label services company earlier this year.
Inevitably, it prompted a reaction from the independent sector to the the switch of an indie to the major label system. Since the deal was struck, the DCMS Committee has called for an investigation by the CMA into the major labels and the streaming market.
The Competition and Markets Authority’s investigation found that 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,” said the CMA in today’s statement. “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, 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,” said the CMA. “There is also evidence that Sony intended to expand The Orchard’s offering, focusing more on the emerging pool of smaller artists, which would have led it to compete more with AWAL.”
The CMA suggested that 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 regulator said it is “concerned that the loss of an innovative competitor like AWAL could, despite the continued presence of the other major labels, lead to worse terms for artists and less innovation in the music sector”.
This decision by the CMA is perplexing and based on an incorrect understanding of AWAL’s position in the UK
Sony must now address the CMA’s concerns within five working days. If it is unable to do so, the deal will be referred for an in-depth phase 2 investigation.
In a statement, Sony Music Entertainment said: “This decision by the CMA is perplexing and based on an incorrect understanding of AWAL’s position in the UK. 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. We will continue to work closely with the CMA to resolve any questions they might have.”
AWAL's parent company Kobalt only recently became profitable after 20 years in business. AWAL's market share is estimated at 1-2%.
In its announcement, the CMA referenced the DCMS Committee report on the economics of streaming.
An industry source told Music Week: "Serious questions should be raised about why an independent body that is mandated to base its decisions on facts and evidence, has on this occasion stated publicly that they have been influenced by the DCMS Select Committee report published in June. The DCMS report should not have any bearing on what should be an independent and objective analysis by the CMA.”
The CMA noted the rise of artist and label services operations as a viable alternative to majors for many artists.
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.”
Paul Pacifico, CEO of AIM, said: “The CMA raises 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.”