Lobbying Heats Up Before Universal/EMI Senate Hearing
-- Stakeholders have been spending and strategizing ahead of Thursday's Senate Judiciary subcommittee hearing on Universal $1.9 billion acquisition of EMI Music's recorded-music division and the eventual approval or rejection by the Federal Trade Commission.
"Groups that have been heavily involved [in the merger] have really amped up their lobbying in anticipation of a contested Senate hearing and a review by the FTC," Alex Bronstein-Moffly, an analyst at Washington D.C.-based First Street Research Group, tells Billboard.biz. Of course, there's nothing unusual about that, he notes. Companies on either side of a proposed merger have extra incentive to step up their lobbying efforts.
Warner Music Group, an outspoken critic of the merger, upped its lobbying spending greatly last quarter. Bronstein-Moffly said it's unusual that Warner Music Group increased its quarterly lobbying expenditures from roughly $100,000 to $360,000 in the first quarter of 2012 without disclosing any lobbying efforts. "It's unusual to spend $300,000 on lobbying and not lobby on any issues," he says. (A source told Billboard.biz that more than 60% of that total is WMG's share of contributions to the RIAA's lobbying efforts.)
Where companies are spending their money may be more important than how much they're spending. Universal has hired Capitol Hill Strategies and the Podesta Group in recent months. Capitol Hill Strategies is a lobbying firm that employs the former chief of staff to Senator Herb Kohl, Paul Bock. Kohl is currently a member of the Senate Judiciary Committee and is chairman of the subcommittee that will hold Thursday's hearing. Block worked on Kohl's Judiciary Committee staff for two years prior to spending 12 years as Kohl's chief of staff. "It was clearly a strategic move on their part to hire someone who knows how Senator Kohl thinks," says Bronstein-Moffly.
EMI Music owner Citigroup, a politically well-connected and massive financial services company, spent $1.5 million on lobbying in the first quarter of 2012 and $5.47 million in all of 2011, according to data provided by First Street. Since there are always numerous issues in Washington D.C. related to financial services, it is difficult to say how much was spent on the UMG-EMI merger.
Warner has contracted with strategic communications firm Glover Park Group. That group has spent $20,000 lobbying on behalf of Warner Music Group this year but did not disclose the issue of its lobbying activity. The firm had previous done work for Warner on "matters pertaining to performance rights, copyright and intellectual property," according to filings.
Most stakeholders' first-quarter lobbying expenditures did not outpace their spending in 2011. Universal spent no more on lobbying in the first quarter of 2012, $980,000, than it did in total over the previous four quarters ($3.67 million). Sony Corp, parent company of Sony Music Entertainment, spent $917,000 last quarter and $3.6 million in 2011 for all corporate lobbying that may or may not have included lobbying related to the merger. Live Nation spent $55,000 in the first quarter and $220,000 in 2011. Irving Azoff, Live Nation executive chairman and chairman of the board, will speak at Thursday's hearing (he is testifying, and is technically not a stakeholder). According to public disclosures, Live Nation's lobbying efforts in 2011 and 2012 were made through law firm Greenberg Traurig and were aimed issues related to regulation that would impact its ticketing business, Ticketmaster.
Lobbying expenditures listed here are separate from the political contributions made by company executives and directors to members of the subcommitee or political organizations. Those amounts are publicly available at OpenSecrets.org and the Federal Election Commission's website.
(The above figures were provided by First Street Research and the U.S. Senate website. The companies cited either had no comment or had not responded to Billboard.biz's request for comment at press time.)
The ultimate decision on the merger sits with the Federal Trade Commission, but Bronstein-Moffly believes Thursday's hearing could shape how the media portray the merger and how the debate evolves. "If senators want to make a fuss, they can make an impact." ( First Street Research)
Billboard.biz will be live-blogging and live-tweeting the hearing beginning at 1:30 p.m. ET tomorrow (Thursday, June 21).
American Antitrust Institute Says UMG/EMI Merger Would Create a 'Highly Concentrated Industry'
-- Put the American Antitrust Institute (AAI) on the "no" side of the Universal Music Group-EMI Music merger. The Washington D.C. non-profit with a self-described "centrist legal-economic ideology" has submitted a written statement to the Senate Judiciary Committe Subcommittee on Antitrust, Competition Policy and Consumer Rights for Thursday's hearing.
Like critics before it, the AAI warns a merger would create "a highly concentrated industry" that would be "vulnerable to the kind of anticompetitive, welfare-diminishing abuses the antitrust laws were designed to prevent."
But the AAI is concerned not just about market share but also the implications behind market share. The group's letter warns that major labels' steady and dominant market shares - even in digital sales - suggest independent artists don't really compete on a level playing field. Further, AAI believes concentrating power into three companies will increase the likelihood the remaining majors could collude against competitors.
The AAI slips a bit on occasion, however. For example, it argues four majors is sufficient for licensing to new digital services but uses the example of EMI being the first to license MP3 downloads to Amazon.com in 2007. The others followed suit, the AAI explains, because they "usually cannot justify the foregone licensing revenue to their constituencies for very long." Of course, the problem with this logic is that Amazon.com was not a new entrant - the download store already existed - and no new service aimed at the mainstream market could launch with only one major. Besides, the winds were changing and major labels were going to embrace the MP3 format sooner or later anyway.
But the AAI gets the gist of the potential problem: no new service could think of launching with a post-merger Universal on board, and that could potentially give Universal a heightened ability to dictate - unfairly, critics would argue - the service's business model and features. This is the basis of the Consumer Federation of America's opposition to the merger.
"The mere perception that a single dominant firm," the AAI argues, "or three firms with market power consciously acting in parallel, can leverage access to an essential input inevitably would dissuade rational investors from innovating in platform and business models. Likewise, Sony and Warner would have no reason to sponsor new entry by licensing their respective catalogues to new platforms, because the new entrant could not possibly compete without Universal's catalogue. The two remaining labels would base all negotiations of licensing terms, or they would refuse to negotiate, depending entirely on what they know or suspect to be Universal's preferences, effectively awarding Universal a de facto gatekeeper role."
In a statement, a representative for Universal Music Group said: "Among the inaccuracies contained in AAI's analysis is that it vastly downplays the role of power buyers and piracy on pricing, which is well known to anyone who works in the content business. Moreover, contrary to AAI's analysis, Indies now account for 30% market share and negotiate licensing agreements with digital platforms as a block under the global rights agency Merlin, which bills itself as a 'virtual major.'
"As a result, post-acquisition analysis indicates only a moderately concentrated market with an HHI score well within the guidelines for sound antitrust policy.
"Today's music marketplace is intensely competitive and consumers have more choice than ever. Universal Music fully supports new digital music services and has licensed its music to hundreds of platforms in the U.S. and around the world. The future of music depends on making it as easy as possible for consumers to legally access the music they love, and that means embracing digital platforms. Our acquisition of EMI will create even more opportunities for new and established artists, expand the marketplace with more music and support new digital services." ( American Antitrust Institute)