The European Commission has informed Universal Music Group of its preliminary view that its proposed acquisition of Downtown may restrict competition in music distribution.
The proposed $775 million deal was announced by UMG’s Virgin Music last December.
A competition probe was launched in the summer by the European Commission.
The acquisition has seen a coordinated campaign in opposition from parts of the independent sector, while Virgin Music has defended the deal and hit out at "falsehoods".
The Commission conducted an investigation to understand the affected markets and the potential impact of the transaction.
As a result, the Commission said it is concerned that UMG may have the ability and incentive to gain access to commercially sensitive data that is stored and processed by Downtown's Curve, and that such an information advantage for UMG would hamper rival labels' ability and incentive to compete with UMG.
A statement of objections is a formal step in an investigation. UMG now has the opportunity to reply, to consult the Commission's case file and to request an oral hearing.
A UMG spokesperson said it was “a normal part of the regulatory process,” while reiterating that the proposed deal would give independent music entrepreneurs “access to world-class tools and support to help them grow”.
“We look forward to continuing to work constructively with the Commission toward a successful conclusion of this process,” added the spokesperson.
In a statement, European trade body IMPALA said: “IMPALA welcomes the European Commission’s statement today confirming to UMG that the proposed acquisition of Downtown raises concerns about restricting competition in the wholesale distribution of recorded music market, in particular an information advantage for UMG that would hamper rival labels' ability and incentive to compete with UMG.
“We believe this acquisition should be prohibited outright – data concerns arising from horizontal overlaps cannot be resolved by remedies as the EC’s own guidelines make clear.”
A deadline of February 6 has been set for the European Commission decision.
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