KEY POINTS:
Martin Mills first realised that independent record labels had to unite when MTV Networks Europe scrapped an industry-wide licensing deal in the 1990s and signed separate contracts with the major music companies.
"We needed to stick together," says Mills, who helped to found Brussels-based Impala, an "indie" trade group. "We couldn't shelter under the majors' umbrella any more."
Mills scored his biggest victory in July, when a European Union court annulled the EU's clearance of the Sony BMG venture between the music units of Sony Corp and Bertelsmann. The decision also derailed merger talks between EMI Group and Warner Music Group.
The independent labels argue that such combinations reduce competition and stifle the development of new artists. The biggest music companies are trying to join forces to reduce costs and increase market share, as the industry shrinks under pressure from pirated CDs and illegal downloads.
"The independents have come from almost obscurity to having an immense effect on the music landscape," says Henk Potts, a fund manager at Barclays in London.
"The ruling has thrown the whole sector into chaos, creating uncertainty that makes it impossible for merger negotiations to continue."
The shares of Warner, which represents Madonna and James Blunt, plunged 18 per cent in New York on July 13, the day the EU Court of First Instance ruled in the Sony BMG case.
EMI, whose artists include Coldplay and the Beatles, fell 9.2 per cent.
Warner Music is still down 11 per cent at US$26.61 a share, and EMI is off 9.4 per cent at 277.25p.
The lower court said EU regulators failed to support their conclusion that the major record companies wouldn't jointly dominate the market.
Sony BMG is the world's No 2 recorded music company behind Vivendi SA's Universal Music Group.
Tokyo-based Sony and Bertelsmann have appealed the decision to the European Court of Justice in Luxembourg. They are also submitting new market data to the European Commission so it can reconsider the deal.
The regulator can approve the venture again, impose stricter conditions or force it to be unwound.
Two weeks after the court ruling, Warner said it wouldn't be "prudent" to pursue a merger with EMI "until matters become clearer". EMI said it would not pursue a combination with Warner "for the time being".
Impala also opposes Universal Music Group's agreement to buy BMG Music Publishing from Bertelsmann.
The US$2 billion deal, announced in September and now under review by EU regulators, would reduce competition, Impala says.
Mills, an Oxford University graduate, opened a London record store in 1974 and rode the punk wave by starting independent music label Beggars Group. The company's artists today include the Charlatans and Thom Yorke, lead singer of Radiohead.
"Punk blew in like a hurricane," says Mills, 57. "Punk was exciting, it came along with loads of spirit, loads of drive. It was a very overwhelming moment, and I got caught up in it."
In 1999, Mills helped found the Association of Independent Music, or AIM, which represents UK labels. A year later, he became a founding board member of Impala, whose full name is the Independent Music Publishers and Labels Association.
EMI and Warner Music in 2000 abandoned a US$20 billion ($30.2 billion) merger after EU regulators said reducing the number of music majors would curtail competition.
Impala, whose leaders include Patrick Zelnik of France's Naive Records and Michel Lambot of Belgium's Play It Again Sam, had lodged complaints about the combination.
"Together, the major music companies are able to exercise collective dominance to the detriment of small players and cultural diversity," says Mills.
Universal controls 25.5 per cent of the global music market. It is followed by Sony BMG at 21.5 per cent, EMI at 13.4 per cent and Warner at 11.3 per cent, according to 2004 figures from the International Federation of the Phonographic Industry. Independent record labels had a 28.4 per cent share.
"AIM and Impala have done a very good job fighting the corner of the independents," says Paul Burger, former president of Sony Music Europe who now heads Soho Artists, a music-management company.
"Martin Mills is a very strong negotiator. He stakes out positions and sticks to them."
At the same time, the independent labels have become a bigger economic force because internet sites such as News Corp's MySpace allow them to market directly to consumers, reducing their dependence on the majors.
The two trade groups clashed with Viacom's MTV Networks Europe again in 2004. The independent record labels threatened to boycott the music network, saying MTV sought to reduce royalties by 55 per cent.
MTV eventually reopened talks on a collective contract with the independents, and a three-year deal was struck.
Details weren't disclosed, though financial terms were roughly equal to the previous agreement, Music Week magazine reported.
Independents are "fairly remunerated", Mills said at the time.
Simon Guild, president and chief executive officer of MTV Networks Europe, said the company had "a long and proud tradition of supporting the independent music industry" in a statement in response to questions.
Spokespeople at MTV, EMI, Bertelsmann, Sony and Warner declined to comment on the role of Impala and AIM.
Impala hasn't had an unbroken string of victories. The UK Office of Fair Trading in May rejected AIM's request that the regulator probe a new UK singles chart that combined downloads and physical sales.
AIM said it discriminated against independents, partly because download figures weren't yet accurate enough.
The list is published by the Official UK Charts, a joint venture between the British Phonographic Industry, or BPI, and the British Association of Record Dealers.
Some music executives criticise Mills for treating the major record companies as adversaries rather than partners as the industry struggles to reverse a decade-long sales decline.
There's a split in the independent community over how to deal with the majors, says Paul Birch, founder of Revolver Music, whose acts have included Leo Sayer and Rose Royce.
"One way is to jump up and down outside the factory gate, and the other is to enter and sit down and negotiate. It's important that the independents are able to leverage the economic power the majors have," Birch says.
BPI chairman Peter Jamieson says it's a "tragedy" that Mills isn't on his board to represent the independents. "Martin Mills is one of the great intellects in the music industry."
Mills, unapologetic about his approach, says he must take autonomous stands on behalf of independents.
"The BPI represents the majors and there are a lot of interests that diverge," he says.
Alison Wenham, AIM's chairwoman and CEO, who in January was elected the first president of the newly formed World Independent Network trade group, agrees.
"Music is not a commodity. We believe in choice for consumers."
The EU court helped preserve that choice, Wenham says. When Mills phoned her with the news moments after the ruling, he sounded like "he'd just seen Santa Claus for the first time".
Major notes
* Universal controls 25.5 per cent of the global music market.
* Sony BMG has 21.5 per cent.
* EMI has 13.4 per cent.
* Warner has 11.3 per cent.
* Independent record labels have 28.4 per cent.
- BLOOMBERG
