It’s been a slow and arduous process for the New Zealand Commerce Commision to analyse the potential merger of AlphaTheta (Pioneer DJ’s parent company) and leading DJ software company Serato, but the wait is finally over, and they’ve decided to block the acquisition. As I figured could happen in our Engine DJ leak story, the commission determined that the merger would pose “a substantial lessening of competition for DJ software, resulting in price rises to consumers and/or a lower quality software offering”.
Commission declines clearance for AlphaTheta’s proposed acquisition of Serato
Published 18 Jul 2024
The Commerce Commission has declined to give clearance to AlphaTheta Corporation (AlphaTheta) to acquire Serato Audio Research Limited (Serato).
AlphaTheta and Serato are both active in the DJ segment of the music industry. AlphaTheta supplies DJ hardware under the Pioneer DJ brand and DJ software under the rekordbox brand, and Serato supplies DJ software. Serato’s DJ software is currently integrated with many brands of DJ hardware, including Pioneer DJ.
The merger proposed bringing together two of the most popular DJ software brands and would have also combined ownership of the most popular DJ software brand (Serato) with the most popular DJ hardware brand (Pioneer DJ).
Chairman Dr John Small said that the Commission was not satisfied that the merger would not have the effect of substantially lessening competition in the markets for DJ software and DJ hardware.
“The evidence gathered by the Commission indicated that Serato and rekordbox compete closely in the DJ software market. While other DJ software providers would remain in the market, we did not consider these rivals, or the possibility of a new DJ software provider entering the market in the near term, would be sufficient to replace the level of competition that would be lost with the merger. We therefore could not exclude a real chance that the merger would result in a substantial lessening of competition for DJ software, resulting in price rises to consumers and/or a lower quality software offering,” Dr Small said.
“We were also concerned the proposed merger would substantially lessen competition by making it harder for DJ hardware rivals to compete with Pioneer DJ. Serato is an important piece of software for DJ hardware providers to integrate their DJ hardware products with, and the evidence before us indicated that the merger could give ATC the means to either eliminate or worsen DJ hardware rivals’ ability to integrate their products with Serato. We were also concerned the merger would provide ATC with access to its DJ hardware rivals’ commercially sensitive information, including information about unreleased products shared in the integration process, which could provide ATC with a competitive advantage and lessen the incentive on both ATC and its rivals to innovate.”
A public version of the Commission’s written reasons for the decision will be available on the Case Register in the near future.
BackgroundThe proposed acquisition is also under investigation by the United Kingdom’s Competition and Markets Authority (CMA). Details of the CMA’s investigation can be found on its case page.
The proposed acquisition came to our attention as part of our merger surveillance programme, where we identify mergers that have not been notified to the Commission. As part of this programme, Commission staff gather information from various sources, including public sources, to identify mergers that could give rise to competition concerns in a market or markets in New Zealand.
When considering a merger clearance application, the Commission must focus on whether any competition that would be lost with the merger would be substantial. We will give clearance to a proposed merger only if we are satisfied that the merger is unlikely to have the effect of substantially lessening competition in a market.
Further information explaining how the Commission assesses a merger application is available on our website.
What does this mean?
In the short term, it means that the owners of Serato don’t have a pathway to selling the company, which they seem intent on doing. Since there’s been such significant hegemony in the DJ tech industry (which, ironically, is why the merger was blocked), there isn’t really anywhere the owners can turn without looking for deep pockets in the finance sector.
The Rogue DJs team have joked over the years about raising funds to purchase Traktor from NI and rebuild it (obviously a ridiculous idea). But in the long term, something like that might be the only way Serato doesn’t end up picked apart by bean counters at some venture capital firm with no understanding nor care for DJing or DJ software.
But the commission are right… AlphaTheta owning Serato would have been a dry shit sandwich.
Perhaps Serato will need to look at firming relations with a new hardware partner? But what are the options? Allen & Heath? Too small. Reloop? Hercules? Both are a possibility, perhaps with Reloop more so since they have been known to build decent higher-end gear. Roland? They had some good ideas but are out of the game? Korg? Again, creative, but not in the DJ tech industry any longer. There just isn’t a lot of options these days.
So, for now at least, Serato is stuck doing what they’ve always been doing (and doing pretty well).
Over to you
How do you feel about the merger falling through? Where do you see Serato in five years after this news?
