Indies Start to Break Ranks in Opposing Universal-EMI Deal

By BEN SISARIO

12:04 p.m. | Updated One of the stranger byproducts of the music industry's fight over the fate of EMI Music is how the whole thing has strained the world of independent labels.

Once apparently unified in their opposition to the Universal Music Group's $1.9 billion takeover of EMI - the troubled British label that releases music by the Beatles, Pink Floyd, Norah Jones and many others - the indies have struggled to maintain their stance while some of their most prominent members have broken ranks.

In a private memo on Tuesday to the members of Impala, an international trade body for small labels, the group's executive chair, Helen Smith, said this had been “one of the most trying weeks of Impala's life.”

When Universal made its bid late last year, most of the opposition to the deal looked at the resulting market imbalance among the three remaining major record companies. B ut over the last week, as Universal has scrambled to gain the approval of the European Commission, a gambit by Lucian Grainge, Universal's chairman, has shifted the focus.

With regulators demanding significant divestments, Mr. Grainge made a bold chess move to appease the commission and at the same time divide some of his opposition by giving indie labels first crack at $300 million worth of EMI's assets in Europe. In many cases, he was offering to sell catalogs that were once independent but over the years had been absorbed into EMI, like those of Virgin, Mute and Chrysalis.

He even offered $30 million in financing to help Impala's labels  make the deals. And the word throughout the music industry is that Mr. Grainge is determined not to sell pieces of EMI to his major-league rivals, Sony and Warner. But whether Universal would be able to exclude potential buyers - a move that could prevent the company from getting the highest pric e for the assets - was unclear.

In a statement, a Universal spokesman said: “We will continue to work closely with the independent music community so that, together, we can help ensure the future health of our industry. Impala's recent vote shows that there are senior members of that community who have embraced our messages of cooperation and transformation.”

To some extent, Mr. Grainge's gambit worked. Several top independent figures gave him their support, and in some cases also said they wanted to buy EMI's castoffs. Impala was able to maintain its outward stance of opposition to the merger, but the moves exposed a rift in the independent community, forcing its leaders to try to maintain control and minimize damage.

In Ms. Smith's memo on Tuesday, a copy of which was obtained by The New York Times, she asked members to keep discussions confidential and not communicate with the news media. “The week has seen moves to manipulate the organization fro m all corners,” she wrote. “I hope we have seen it all. This is not what Impala was set up for.”

In a statement on Wednesday, Ms. Smith noted that her memo also emphasized a call for solidarity among independents.

“The organization takes the principle of treating all members equally very seriously, as well as our rules on conflict and confidentiality,” she said. “Negotiating from a position of collective strength to benefit all members is what Impala stands for.”

Universal is now more than a week past its initial deadline for filing deal remedies. Its final deadline for the proposal is Aug. 1, and if it files by then the European Commission would have to rule on the merger by Sept. 27.

Until then the indie world, which in the past has called for the merger to be blocked outright, is apparently preparing for any outcome. Ms. Smith met on Monday with Joaquín Almunia, the European competition regulator, and in her memo she told Impala memb ers that if remedies must be made, “it is paramount that all members and members of national associations are treated equally.”

Martin Mills, the founder of Europe's largest indie, Beggars Group, expressed a similar position in an interview with The New York Times last week. He said he still hopes the Universal-EMI merger will be blocked, but called for some form of regulation when it came to how EMI's pie would be divided.

“If we get to the point where there are divestments,” Mr. Mills said, “there is going to have to be some incredibly agnostic third-party process about how that is arrived at. Any conflict of interest has to be avoided at all costs.”

Ben Sisario writes about the music industry. Follow @sisario on Twitter.