The proposed acquisition of EMI's recorded-music division by Universal Music Group continues to inspire debate. This is a guest post from Public Knowledge President/CEO Gigi B. Sohn, who testified at the Senate hearing examining the deal last month, and the organization's staff attorney, Jodie Griffin. The views presented in this article do not represent those of Billboard or its staff. Billboard.biz welcomes responsible guest commentary.
The proposed merger between Universal Music Group and EMI would result in fewer innovative online music services and higher prices, harming both music fans and musicians. In a hearing before the Senate Antitrust Subcommittee last month, I explained how the merger would harm both musicians and their fans.
The merger would decrease the number of major labels from four to three, and give the combined UMG/EMI record label direct control over distribution for 41% of the recorded music market. A merger that creates a market so extraordinarily concentrated not only violates federal antitrust law, but also gives the merged label effective veto power over new digital music distribution services.
Looking at the most popular music of today, the picture looks even worse: last year, 51 out of the top 100 songs were released through either UMG or EMI. (Note to Live Nation's Irving Azoff, who supposedly has a team of people fact-checking our charts: these numbers come directly from the 2011 year-end Billboard Hot 100.) A new online music service simply could not succeed if it could only offer less than half of the most popular music to customers. As a result, UMG/EMI would have the power to stop any new music service in its tracks, or demand exorbitant licensing fees that would likely come out of independent labels' share of the revenue.
During the hearing, UMG and EMI were joined by Mr. Azoff in support of the proposed merger. Unfortunately, it did not come to light in the hearing that Live Nation is not a disinterested observer in this proceeding: last fall Live Nation and UMG announced a strategic partnership to bundle music products and concert ticketing, so Live Nation stands to benefit if UMG's roster suddenly includes all of EMI's artists. None of these witnesses could produce any compelling arguments that the merger would benefits musicians or consumers.
In the hearing, UMG and EMI had no response to our arguments that the merger would violate antitrust law. Instead, they insisted, time and again, that they should simply be trusted to embrace digital technology, and that it would somehow be professional "suicide" to do otherwise. But as savvy musicians know, coming from a major label, the "just trust us" argument does not give much comfort. This is especially true because UMG has a history of demanding high licensing fees (eMusic), taking an ownership stake in new music services (MOG, Spotify, and Vevo), refusing licenses to new services (Beyond Oblivion), and taking others to court (Deezer, Groovehark, and Veoh).
The fact is that major labels like UMG have a strong incentive to stifle or take control over online music services, because those services challenge the major labels' traditional gatekeeper status in the music business. Digital music services make it easier for unsigned artists or independent labels to produce, promote, and distribute music to consumers without relying on a major label, which threatens the major labels' dominance over the industry.
In the hearing UMG also tried to reassure antitrust regulators by arguing that all of their artists would leave if the combined UMG/EMI refuses to embrace digital technology. This argument borders on misleading, by implying that musicians signed to a major record label have the right to walk away from their contracts if they are not satisfied with the label's behavior. Major label record deals do not allow artists to simply switch to a new label-although the label itself has broad discretion to decide whether and when to release the artist's album-and it is the very fact that major label contracts lock in artists so strongly that makes this proposed merger a serious threat to competition.
In the end, this proposed merger would harm consumers, stifle new distribution options for musicians, and decrease competition in the music business. All the assurances in the world cannot change the fact that the major labels have a history of resisting digital technology and still have the incentive and the ability to do so. This merger must be blocked, for the sake of musicians and their fans.