Some of the music industry's top music executives painted various pictures of the Universal Music Group-EMI merger at a Senate Judiciary subcommittee hearing Thursday afternoon. It was a rare opportunity to see well-known executives queried and occasionally grilled by elected officials about a mega-merger that could have far-reaching implications.
The group of senators and a nationwide Internet audience heard encouraging predictions from UMG chairman Lucian Grainge, EMI Music CEO Roger Faxon and Live Nation executive chairman Irving Azoff. On the other side were Warner Music Group director Edgar Bronfman Jr., Beggars Group founder/chairman Martin Mills and Gigi Sohn of consumer group Public Knowledge.
Grainge and Faxon testified the merger would result in more innovation, more music for consumers and a more stable company. Bronfman and Sohn warned the merger would limit consumer choice and allow Universal too much ability to limit digital innovation and impose its terms on startups. Azoff, who favors the merger, told the senators a merger would encourage a healthier independent business as artists steer away from a more powerful Universal.
Gainge, Faxon and Bronfman wanted to appear the innovator. The label executives often wanted to discuss when they licensed -- not always how they licensed -- their catalogs to digital services such as Spotify. When the issue wasn't the timing of licensing deals it was the fact that licensing deals had been negotiated at all. Indeed, for all its alleged foot-dragging, Universal can point to hundreds of licensing deals around the world.
"The fact that it takes five or six months, or a year, whatever it takes to get there, the fact that we have demonstrated we get there is something I think is the point to take away from the discussion," Faxon said.
But the senators were frequently reminded the decision to license is only part of a label's power. Bronfman and Sohn repeatedly made the point that market power is also about the terms a label can excise. Sohn called EMI "a maverick competitor" that was the first to license the sale of MP3 downloads in 2007. She warned the merger would give Universal the power to raise prices -- something lawmakers and regulators watch for carefully -- and offered as evidence a change of eMusic's pricing structure when Universal became the last major label to license its catalog to the MP3 download service in 2010.
Mills warned the senators that Universal would exploit its greater market power if given the chance. He also warned artists, and as a result fans, would suffer because a larger Universal would be less likely to take a chance on artists that didn't have obvious financial appeal. Comparing artists on Universal and EMI to one of his own, he said it would be impossible to substitute the more pop-oriented artists Katy Perry and Lady Gaga for one he developed, Adele.
Bronfman, who became the lone critic from within the industry after Mills had to excuse himself before the end of the hearing, kept returning to the idea of competitive balance. "As the market becomes more concentrated, as one company essentially controls half of the hits and 40% of the overall market, the ability for a third company to influence the outcome becomes smaller and smaller … At 50% of the hits, Universal can say no to anything."
"We don't want to punish them for having a lot of hits, though," Senator Michael Lee interjected. But Bronfman drew a distinction between a government-approved acquisition of a market-dominant position and one attained organically. "I complement the work [Grainge] has done, and I think if Universal were able to get to 42% market share through its own sweat and hard work, more power to them."
Although she repeatedly said Universal uses its market share to extract exorbitant licensing fees, impose unfair terms and litigate against digital startups, Sohn failed to successfully paint Universal as an impediment to progress. Most notably, Sohn singled out Universal's decision not to license its catalog to Grooveshark and Beyond Oblivion. The mention of Grooveshark was an odd choice given its level of notoriety and controversy within the music business. Universal is hardly alone in its disdain for the service: Warner Music and Sony Music have joined Universal in its lawsuit against the music service, and neither has joined Universal in licensing their catalogs to it.
The hearing focused on potential negative results of greater concentration, but the speakers also talked of its potential benefits. Senator Lee noted EMI might be better off under the ownership of a music company than continued ownership of financial giant Citigroup. Azoff also said he believed Capitol Records and its artists would benefit from additional investment under Universal ownership.
Grainge and Faxon emphasized the rebuilding that will happen under Universal ownership. They argued that Universal will provide EMI the stability a music company needs to be successful and invest in artists' careers. In an attempt to assuage concerns the merger would limit consumer choice, Faxon said the merger would result in more music being released to the market for consumers.
"Remember, our product is not a disc," Faxon said. "It's the output of human beings who need to be motivated and need to feel safe and protected as they pursue a very dangerous career."
Bronfman wasn't buying those arguments. He told the subcommittee that EMI's artist roster would likely be reduced and cited the results of the Universal-Polygram in 1999, the Sony BMG merger in 2004 and Warner's own restructuring.
"In all three of them, the artist roster post-merger or restructuring was reduced somewhere between 30 and 40 percent," he said.
The hearing had its share of humor, too. At one point, Senator Al Franken noted Vivendi's origins as a water company and General Electric's ownership of NBC during his tenure at "Saturday Night Live" as examples of successful yet mismatched corporate ownership.
"We were run by Bob Wright, who we used to call a toaster salesman, but he was one of the great chairman of NBC," Franken said.