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In this photo released Wednesday July 5, 2006 by Universal Music Group International the companies three levels of packaging for their artist's CD's.

AP

Europe's top antitrust watchdog has set out a sweeping list of objections to Universal Music's £1.2-billion ($1.8-billion U.S.) bid for EMI's record labels, putting pressure on the Vivendi subsidiary to offer large concessions to save the deal from being blocked.

According to people who have seen a "statement of objections" circulated by the European Commission, it argues that Universal, the world's largest music company, already extracts materially higher prices from digital distributors than rivals, and that buying EMI would allow it to raise digital music prices.

The Commission disagreed with Universal's assessment of its market share, which excludes music it distributes for independent record labels, these people said. It was similarly unmoved by its arguments over the countervailing power of Apple and the pressure on legitimate music sales from piracy.

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"We are preparing a detailed response to the Commission's statement which will address the concerns outlined in this procedural document," Universal said. "We will continue to work closely with the Commission and look forward to securing regulatory clearance."‪

The company is expected to respond within days, setting the stage for a negotiation in which it may have to offer groundbreaking concessions about its future behaviour in the digital market as well as any disposals regulators demand.

Universal declined to comment on any concessions, but one plan said to be under discussion would see it ensure that independent labels got the same financial terms from any new digital music service that Universal secures for itself.

Much is at stake for Vivendi, which has guaranteed to pay Citigroup, EMI's current owner, £1.1-billion of the purchase price by September, whether or not European and U.S. regulators clear the deal. Any substantial disposals or concessions could damage its ability to extract savings and other benefits from the acquisition.

Jean-Bernard Lévy, Vivendi's chief executive officer, stepped down suddenly last week, leaving Lucian Grainge, Universal Music's chief executive, to reassure staff that the French group remained committed to the EMI deal.

Among the Commission arguments Universal will have to address is a claim that its potential dominance of recorded music would be compounded by its existing position as number two in the music publishing market.

The Commission expressed concern about Universal's ability to use its size to win better terms for its artists and to boost prices for EMI's catalogue, which ranges from The Beatles to David Guetta. Universal could also secure more air time on radio, television shows and online outlets, shutting out rivals, it argued.

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Statement of objections are not uncommon in antitrust cases. The Commission has approved 25 of the last 27 mergers that went to an extended review.

Universal also faces a Federal Trade Commission review of the EMI deal in the US, where it faced hostile questioning from senators last month.

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