Sony Music's AWAL acquisition given provisional approval by Competition & Markets Authority

Sony Music's AWAL acquisition given provisional approval by Competition & Markets Authority

The CMA has provisionally cleared Sony Music’s acquisition of AWAL, following an in-depth merger inquiry.

The Competition and Markets Authority (CMA) referred the merger to an in-depth Phase 2 inquiry, after identifying competition concerns during its initial investigation.

Having examined the merger, the CMA has provisionally concluded that the deal “does not substantially reduce competition in the UK and may not be expected to do so in the future”.

The findings are welcome news for the major and provide more certainty for AWAL. The company has this week celebrated success at the BRITs for Little Simz, who had a commercial breakthrough last year.

“Sony Music Entertainment welcomes the CMA’s provisional determination that its acquisition of AWAL raises no competition concerns and, in doing so, its recognition of the competitive and dynamic nature of the UK music market," said a statement. "Our investment in AWAL will deliver real benefits for artists and consumers, amidst intense competition at every level of the music industry. We look forward to continuing to work with the CMA throughout the final stages of their review.”

In addition to its main label offering, Sony also owns another artist and label services company, The Orchard, which became a focus of the investigation. 

AWAL was built by Kobalt to provide an alternative to traditional music deals. However, in its submission to the CMA, Sony said AWAL had not been profitable prior to the acquisition.

The CMA’s inquiry focused on the two main areas in which the firms’ businesses overlap. It assessed the extent to which The Orchard and AWAL may be expected to compete to provide artist and label services. It also looked at how closely Sony and AWAL may be expected to compete to sign successful artists, and those with the potential to become successful, where higher levels of support and investment are provided.

Our investment in AWAL will deliver real benefits for artists and consumers, amidst intense competition at every level of the music industry

Sony Music

The independent sector has raised concerns about the acquistion of AWAL and the power of major labels. But the CMA has found that the artist and label services sector is open to competition. 

“The CMA has provisionally found that, while not currently competing closely due to their different areas of focus, The Orchard may have become a stronger rival to AWAL in the supply of artist services in future,” said a statement. “However, there are many other providers who will continue to compete effectively with both firms – including independent A&L companies, the A&L branches of the other major labels (like Warner’s ADA and Universal Music Group’s Virgin) and independent labels.   

“In terms of its rivalry with Sony, AWAL is still a relatively small player when it comes to signing artists who require higher levels of support and investment. Despite trying to expand its offering, AWAL was expected to continue to compete with Sony only on a limited basis. In the course of its investigation, the CMA also found that many other firms have begun providing similar services which can be expected to make up for the limited loss of competition from AWAL.”

The CMA's report also noted the evolution of deals for artists at Sony.

"Over recent years, SME has improved the terms it has offered to its artists in terms of improved average royalty rates and offering more deals where SME does not keep the rights to recorded music in perpetuity," the CMA stated.

Reacting to today's report, Paul Pacifico, CEO of the Association of Independent Music (AIM), said: “Whilst the CMA has ruled that AWAL’s acquisition is not enough to substantially reduce competition by itself, it is part of a pattern that threatens to gradually erode competition and diversity in UK music if independent entrepreneurs continue without much-needed access to capital. 
“Sony arguing that even a hugely successful independent like AWAL would have struggled to maintain its position alone highlights the sector’s need for better support to scale-up. Without pathways for growth for independent entrepreneurs, we can expect to see a gradual erosion of competition across the sector, damaging innovation, diversity and leading to less favourable conditions for artists."

As part of its assessment, the CMA considered a wide range of evidence, including thousands of internal documents from both firms, evidence submitted by their competitors and customers, and its own analysis of market conditions. The CMA will reach a final decision after it has considered all responses to its provisional findings and any additional evidence they contain.

Margot Daly, chair of the independent CMA Inquiry Group, said: “Through our inquiry, we have developed a detailed understanding of how Sony and AWAL compete. We have carefully assessed whether this merger will lead to negative outcomes for the market, artists and, ultimately, music fans, now and in the future.

“Our provisional finding is that the deal is not likely to affect competition in a way that will reduce the choice or quality of recorded music available, or increase prices. We think that a combination of other major labels and independent providers will continue to closely rival Sony, so our provisional decision is to clear the merger.”

The CMA is now asking for views on these provisional findings by March 4, 2022 and will assess all evidence provided before making a final decision. 

The statutory deadline for the CMA’s final report is 17 March 17, 2022.

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