Universal Music Group's proposed remedy package to satisfy government regulators that they are divesting enough assets to allay antitrust concerns is facing increased pressure to include solutions that will make the sales of Anglo/American reportoire global in scope.
In a e-mail sent on July 31, to the Federal Trade Commission, which is scrutinizing UMG's proposed $1.9 billion acquisition of EMI's recorded music operation, A2IM president Rich Bengloff said the organization's hope is "that the FTC will sue to block the merger. However, if the merger is not blocked we presume that there will be mandated divestitures and behavioral restrictions required by the FTC."
In other words, A2IM is asking the FTC to take action above and beyond what UMG has proposed as a remedies package for Europe. That package includes the divestment of the European catalogs of Parlophone, Chrysalis and Sanctuary.
That means it would sell the catalog of artists signed to those companies in the U.K., like Radiohead and Jethro Tull. But those remedies, as now proposed, would allow UMG to license the catalog of the divested artists from whoever they sell to and then issue their product in territories outside Europe.
The fact that the UMG divestment package doesn't address the U.S. Market has independent labels in this country upset, which apparently was the impetus of the A2IM letter to the FTC.
Even in Europe, the American market is now the subject of further scrutiny, according to a story in Sunday's Telegraph, which has seen the 30 page questionnaire the EU is sending to interested parties, along with the UMG remedies package.
According to the Telegraph, the questionnaire, which runs to 30 pages, asks for opinions on whether the divestment package will be sufficient to restore competition in the European market." That, of course, is the point of market testing the divestment package.
But then, according to the Telegraph, the questionnaire takes the unusual step of asking if the divestment package includes a "sufficient proportion of Anglo and/or American repertoire."
It may be unusual, but it's not unprecedented: This past year, when the EU scrutinized the acquisition of EMI Music Publishing by a consortium led by Sony Corp. of America, the package initially included divestment of the Virgin U.K. Music publishing catalog; but sources told Billboard at the time that the consortium's proposal to divest was European in scope. After it was market tested by the EU, a beefed up package was subsequently proposed which included the global divestiture of Virgin music publishing and the other artists catalogs in the remedies package. After a second market test, the Sony deal was approved. As of June 29 Sony/ATV owns the EMI music publishing catalog.
Back in the U.S., the A2IM letter goes on to outline a specific concern the organization has with the proposed UMG acquisition of EMI. The letter says the organization's members needs there "to be behavioral restrictions on Universal or they will have the ability to control the market place, particularly on catalog sales and compilations."
"For the first time in history, for the first half of the year catalog album sales exceeded the sales of new releases (releases out 18 months or less) as reported by Nielsen/SoundScan," the letter noted. "Universal often licenses tracks to their competitors for artist releases and compilation releases under a license of limited duration. If the EMI catalog, an extremely strong area for EMI historically, is added to the Universal catalog then the Universal/EMI merged catalog, per the attached research from Joel Whitburn's latest Billboard research book for 1955-2010, will control 27 of the top 40 selling catalogs in the U.S."
With the control of those catalogs, the letter continues, Universal can impact music licensing, particularly in compilations, denying licensing to others so that UMG can dominate the compilation market; or lowering payments to others, if they want to be included in UMG compilations.
If UMG inhibits the ability of other labels to issue new competitive compilations, it will give consumers less choice. Moreover, as older catalog licenses expire, Universal can deny renewal (whether single artist or compilation) causing consumers to no longer have access to that music and hurting artists' revenues.
If that happens, labels that had been licensing music from Universal would have to withdraw their physical music and destroy the inventory and re-issue albums without the tracks denied license by Universal, according to A2IM. In the digital space when a title is re-issued, it loses its iTunes history and consumer comments, both of which spur sales.
Consequently, A2IM argues, UMG's ability to impact the catalog marketplace " is a major reason why the FTC should block the transaction." If its not blocked then, A2IM is asking for behavioral requirements so that UMG will not use its market clout to deny license renewals and to make sure the company continues to provide music licensing on no less favorable terms or else "Universal will monopolize the market place and reduce consumer choice."
The A2IM e-mail to the FTC was a follow-up to a statement the organization made on the prior day when it asked the regulatory agency to block the deal and said: "With no divestitures or operating remedies proposed for the U.S. - the world's largest music market and home to the vast majority of the technology companies who work with the music community - the negative impact on music consumers and emerging technology companies is clear."
A UMG spokespeson said in response that, "Rich Bengloff clearly does not speak for the many Indie labels and artists who have come out publicly in support of the deal. There is growing recognition that Universal Music's investment in EMI will create more opportunities for new and established artists, expand music output and support new digital services. Barriers to entry have evaporated in today's digital environment and there are more ways than ever for labels and artists to get their music out to fans. We are working with regulators around the world and are confident of winning approval."