Warner Music buys Parlophone label

http://www.guardian.co.uk/business/2013/feb/07/warnewr-music-parlophone-record-deal

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Parlophone, the historic British record label behind Coldplay, Blur and Kylie Minogue, is to become part of Warner Music in an estimated £487m deal.

Warner's owner, Len Blavatnik, has beaten rival bids from Simon Fuller, founder of the American Idol TV series, who teamed up with Island Records' founder Chris Blackwell, and an alliance between Sony and BMG.

As the label that signed the Beatles, Parlophone was the jewel in the crown of UK major EMI. It was put up for sale on the orders of the European commission, as a condition of the £1.2bn acquisition of EMI by Universal Music.

The deal is a victory for Blavatnik, the billionaire part-owner of the Russian oil conglomerate TNK-BP, who had been involved in past attempts to merge Warner with EMI.

Having outbid Roman Abramovich on a £41m house in Kensington Palace Gardens in 2004, Blavatnik is known for his deep pockets and is paying cash for Parlophone, which is also home to Pink Floyd.

"This is a very important milestone for Warner Music, reflecting our commitment to artist development by strengthening our worldwide roster, global footprint and executive talent," said Blavatnik. As part of the deal, Warner is also acquiring the Chrysalis and Ensign labels, as well as EMI's recorded music operations in Belgium, the Czech Republic, Denmark, France, Norway, Portugal, Spain, Slovakia and Sweden.

A US citizen who describes himself as an industrialist and philanthropist and dislikes the term oligarch, Blavatnik has been on the board of Warner since 2004, when it was controlled by his friend Edgar Bronfman Jr.

The Ukrainian-born businessman was thwarted in a first attempt to buy EMI in 2007 by Guy Hands, whose Terra Firma took control in one of the most catastrophic private-equity buyouts of the credit boom.

Unable to cope with its mountain of debt, EMI was seized by its bank, Citi, and put under the hammer in 2011. Blavatnik bid again, hoping to merge EMI with Warner, which had just come under his control in a $3.3bn (£2.1bn) cash deal, but lost out to Universal. With Parlophone, his persistence has paid off.

Universal will now have to submit a purchaser-approval request to the European commission. It is understood Warner's offer includes a guarantee to cover any regulatory costs should the sale become tied up in red tape.

"The commission's policy is to verify that the divestiture to any purchaser does not raise new competition concerns," said a spokesman for the EU competition chief, Joaquín Almunia.

Some argue that the deal could be controversial in Brussels, with just three companies – Warner, Universal and Sony – now dominating the music industry. BMG is also a player, but often works in collaboration with Sony.

"Warner have basically thrown an unrealistic amount of money at this in order to grow market share," said an industry insider. "I think it will be challenged by the European commission because they are lessening competition."

Music majors have been driven to merge by falling profits, with sales flattened by the rise of music piracy and digital downloading. The deal will add scale to Warner, whose stable includes Led Zeppelin, Metallica and Bruno Mars but is smaller than Sony and Universal and has been seeking a marriage with EMI since 2000.

"This is the best result for the market," said Martin Mills, who runs the Beggars Group independent label and was one of the most vocal opponents of Universal's acquisition of EMI.

"Warner is a great record company and they are going to be a good home for those artists. It will create a more healthy market than if Universal had swallowed EMI whole or if Sony had bought them.

Parlophone is the oldest active label at EMI and one of its most prestigious. It began life as Britain's leading jazz label before becoming part of Columbia Records, which was in turn swallowed by EMI. When the producer and composer Sir George Martin took over as manager in 1955, he began with comedy recordings by the Goons and Peter Sellers. The breakthrough came in 1962, when Martin, now known as the Fifth Beatle, signed a Liverpool band who were to become the world's most commercially successful musicians. The Beatles catalogue, however, is not part of the Parlophone deal.