Impala, a group representing 2,000 smaller record labels, said Wednesday it would ask the European Union's high court to overturn a decision by EU regulators approving the merger between the music units of Japan's Sony Corp. and Germany's Bertelsmann AG.
The group contends the deal, which creates the world's second largest music company, would unfairly concentrate power in the hands of a few companies.
"We have taken this unprecedented step for what we believe to be the long term health of the entire music industry and all its stakeholders," said Alison Wenham, vice president of Impala and chief executive of the Association of Independent Music, a British group representing 800 independents. "The threat of a duopoly operating in the business without any real constraints is too great for any serious company or sector to ignore."
In a statement from its New York headquarters, Sony-BMG said: "The European Commission reached its decision after an in-depth, six-month investigation and diligent review process, and we are confident that the Court will reaffirm their decision to clear the merger."
The European Commission unconditionally approved the 50-50 joint venture between Japan's Sony Music and BMG, the German media giant's music unit, in July after finding insufficient evidence the deal would harm consumers.
Imapala's appeal is expected to be filed this month at the EU's Court of First Instance in Luxembourg. If Impala wins its appeal, the commission could be forced to order a demerger.
Under the EU court's appeal process, Impala has a right to a hearing, which could take place as soon as mid-2005. A judgment in such cases can take up to two years; however, litigation could take even longer if there are further appeals at the EU high court.
Impala argues the merger would reduce its members' ability to give artists sufficient exposure and ensure cultural diversity in Europe.
The appeal "is about protecting European as well as worldwide cultural diversity and self-determination in a world where globalization means Hollywood," said Michel Lambot, Impala's president and co-chairman of the PIAS Group record label. "We need to make a stance against U.S. domination of our cultural, political and economic interests," said Lambot.
Also, independent labels want to stop any further consolidation among the big music players. Impala claims that 80 percent of the music industry is already controlled by four big companies, including Sony-BMG, Vivendi Universal SA, Warner Music Group and EMI Group PLC. In Europe, Impala argues the big four control some 95 percent of the top 100 sales.
Sony and BMG argued they needed to join forces to deal with declining CD sales and the threat from illegal downloading on the Internet.
But independent labels fear the merger will make it even tougher for their artists to gain exposure and shelf space in a market increasingly dominated by mega-stores.