Sony’s completed purchase of music distribution company AWAL has raised competition concerns, the watchdog said on Tuesday, following a Phase 1 investigation.
The Competition and Markets Authority (CMA) described Sony as one of the three major record labels active in the UK, adding that in addition to its main label offering, it also owns The Orchard, an artists and label (A&L) service provider that it acquired in 2012.
AWAL, meanwhile, is an emerging distributor offering an alternative to traditional record label deals, providing both A&L services and a ‘do-it-yourself platform’ that allows artists to upload their own music for distribution.
The CMA said its investigation found that the wholesale distribution of recorded music in the UK was “highly concentrated” at present, with the three major labels accounting for the “vast majority” of the market.
It said AWAL was an important emerging player, being recognised for its innovative business model, adding that it was one of the few suppliers outside the major labels that had succeeded in gaining a “meaningful foothold” in the market, and had grown “significantly” in recent years.
As part of its investigation, the regulator said that it found evidence that, if the deal had not gone ahead, Sony and AWAL could also have competed more strongly with each other in future.
It said AWAL was “well-placed” to grow its business further in the coming years, adding that there was 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.
That 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 CMA said it was thus 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.
“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,” said CMA senior director Colin Raftery.
“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 was now required to address the CMA’s concerns within five working days, with the watchdog noting that if it was unable to do so, then the deal would be referred for an in-depth Phase 2 investigation.