Monti grabs lead role in EU media show

Date: 06/07/2000

By Peter Chapman

He may be no Russell Crowe, but Mario Monti is set to play the gladiator role in the EU's very own show-business blockbuster.Fresh from his last high-profile performance blocking the all-American telecoms deal between WorldCom MCI and Sprint, the Competition Commissioner is now turning his sights from wires and switches to the glamorous world of the new media.

In the coming months, Monti and his merger task force will review three huge new deals which will redraw the map of EU policy in the sector.

The world's financial markets gasped when the world's biggest Internet

service provider America Online (AOL) announced a €173-billion take-over of Time Warner, the company which owns some of the globe's biggest media brands from news channel CNN to Time magazine. AOL/Time Warner's line up was bolstered yet further when Time Warner announced another audacious move, this time merging its music arm with the UK's EMI Music in a deal worth €21 billion. Last but not least came news that France's Vivendi planned to take over Seagram, the Canadian drinks company and owner of Hollywood institution Universal, in a €31.5-billion agreement.

For five years, analysts have been predicting a rash of deals like these as the "convergence" of formerly separate communications and information technologies has opened up new avenues for reaching consumers via the Internet.

But the business logic behind the moves does not necessarily mean that they will be approved by competition watchdogs, who are fearful that too much content in the hands of one company which acts as "gate keeper" via a mighty multimedia distribution system spells bad news for consumers.

The alarm bells started to ring before the ink was even dry on the AOL/Time Warner/EMI tie-ups, with Monti moving swiftly to announce in-depth probes into the deals last month. That usually indicates that the European Commission will ask the firms involved to make substantial sell-offs to secure approval for their ventures, or even ban their proposed merger altogether.

Most worrying for opponents of the deal such as Philippe Kern, a lobbyist for the EU independent music companies association IMPALA, is the extra dimension which EMI brings to the AOL/Time Warner equation.

They argue that the tie-up would reduce competition further in the highly concentrated music market, and add to the big record companies" stranglehold on the television advertising market and the retail trade - where big labels typically buy up space in the best outlets such as the hypermarket chains where consumers are buying more and more of their music.

Kern claims the combination of EMI with Warner would also bring more than half of the world's music copyright under one roof. This bank of music and lyrics is an asset which continually boosts the company's coffers with payments every time anyone plays or performs one of its songs.

The worse-case scenario, fears Kern, is that AOL could leverage this vast array of content to boost demand for its own services to the detriment of fair competition in the music market. "AOL could use music as a loss leader to attract customers - or even give its music for free," he says.

However, industry insiders predict that the summer's other big media merger - between Canada's Seagram and France's Vivendi - should be far less troublesome, although the companies involved are bound to be concerned by the recent spate of decisions from Monti blocking big mergers.

A few years ago, such a partnership between a spirits firm and a utility company would have been regarded as unusual. But Seagram's foray into the US film and music industry to pick up Universal and one-time water company Vivendi's re-birth as a pan-European telecoms operator and media giant means this is now a marriage made in heaven.

There is no doubt that the deal will lead to the creation of one of the world's largest and most powerful film and record libraries. But supporters of the tie-up will argue that French pay-television and production company Canal Plus, which will be controlled by Vivendi, and Universal are not direct competitors, and that the deal will not create or enhance a dominant position. Moreover, the size of the market for multimedia services via mobile phones - where Vivendi has a joint venture with the UK's Vodafone - is still uncertain, despite the huge sums which companies are paying EU governments for licences to deploy new third generation technology.

In addition, supporters of the deal argue that it will have a major side benefit, boosting the European film industry, which was dented after Seagram took control of Europe's leading film studio as part of its purchase of Polygram from Dutch electronics giant Philips two years ago (although Polygram Filmed Entertainment no longer exists in its old form after Seagram dismantled it and grafted the best bits onto Universal).

The final scene in all these merger investigations is likely to be played out in the autumn, with final deadlines for ruling on the two in-depth probes set for late October.

Competition policy is not the only area where EU media guidelines are set to capture the headlines over the next few months. While Monti will play the leading role as the Union's anti-trust buster, his Luxembourg colleague Vivianne Reding will appear in a supporting role as the Union's quota queen.

Reding, who is in charge of overseeing the EU's €400-million Media Plus programme for the Union's audiovisual industry, will also steer a review of the EU's 1989 broadcasting legislation which is due to be completed at the end of next year.

The directive is, for the most part, a classic piece of single market legislation designed to open up the EU's television market to companies across the Union provided they comply with the rules in force in their home member state. But it is the rules which force member states to limit the proportion of non-EU programmes screened to less then 50% (albeit where practicable) which made the headlines when the directive was first adopted.

The quota - which is designed to protect Union TV viewers from a flood of low-budget, poor-quality US television movies and soap operas - is deeply unpopular on Capitol Hill. It was one of the bones of contention during the negotiations which led to the creation of the World Trade Organisation in the early 1990s, and is still causing trade tensions with Washington as the EU demands that the countries bidding for Union membership add the rules to their statute books before joining the bloc.

EU cultural protectionists from Paris and Brussels to Madrid and Rome - where the quotas are loved - undoubtedly breathed a sigh of relief when the attempts to launch a millennium round of global trade liberalisation talks in Seattle last December went down like the Titanic.

The issue was not meant to be on the table in Seattle and the negotiations which were supposed to follow. But everyone expected demands for one of the symbols of the EU's heterogeneous culture to be sacrificed in the name of a wider deal at some stage during the talks.

Reding's aides say an interim report, due out later this month, will show that the quota system is "functioning well across the Union". The Commissioner is thought to be sympathetic to demands for the ceilings to be retained, although she has already warned that they will be difficult to implement in the on-line world of the Internet and Web TV.

It will now be up to her to decide whether to propose retaining the quotas for the rest of the sector from 2002, or argue that international deals such as Vivendi's tie-up with Seagram make a nonsense of such parochial controls.

Major feature.