Opinion and analysis of the day's music news.
-- If EMI takes the path many people expect, regulatory hurdles are likely to be a part of its future. Now that Terra Firma has lost its lawsuit against Citigroup, many people expect EMI - at least one of its divisions - to be acquired by a competitor and thus once again reshape the structure of the music industry. Almost on cue, (news broke over the weekend) that Warner Music Group is preparing a bid for EMI's recorded music division.
Setting the financial details aside - the acquisition price and amount of debt that could be assumed by an acquirer are separate topics - onlookers should consider a major issue that faces any tie-up of such magnitude: regulatory approval.
A combination of the two companies' recorded music divisions would pose many antitrust challenges, according to Oliver Budzinsky, professor of competition and sports economics at the University of Southern Denmark. He is co-author of a paper about how the Sony BMG merger impacted how record labels act in a coordinated fashion.
Budzinsky points to a number of past issues that are cause for regulatory scrutiny, such as price fixing through minimum advertised pricing in the U.S. In addition, he singles out labels' current erosion of market power due to iTunes' dominant position in the digital marketplace. "The merger could, thus, be seen as an attempt to react to that and trying to restore the old market-power position by means of an increased concentration," he writes in an email to Billboard. "This might lead to a restoration of anticompetitive practices in the new digital world."
Of course, a merger could also be seen as a way to eliminate redundant costs from two record companies and create a more financially healthy single company. Far less could be cut from either record company when they are separate entities.
Aside from pure price competition, Budzinsky says there are other concerns about a merger: barriers to entry for smaller record companies; possible impacts on innovation if independent labels are affected; and a lack of "substantial efficiency advantages" due to the nature of digital music.
The last merger involving recorded music was that of Sony Music and BMG Music in March 2004. While it sailed through in the U.S. the merger was annulled by a European court in July 2006 after being contested by indie label group Impala. The court upheld its original approval of the merger the following year.
It is not uncommon for mergers to require divestments or other considerations. Earlier this year, U.S. regulators approved the merger of Live Nation and Ticketmaster after selling some ticketing operations to satisfy the Department of Justice's concerns about competition in ticketing. In 2000, the European Commission approved the AOL-Time Warner merger provided AOL severed its "structural links" to Bertelsmann AG, a top competitor of Time Warner. In addition, Time Warner dropped its plans to acquire EMI to help the merger pass regulatory hurdles.
Given current market shares, an acquisition of EMI's recorded music division by either Universal Music Group or Sony Music seems less likely to gain regulators' approval. Through Oct. 31, according to Nielsen SoundScan, EMI had a 9.6% share of track equivalent albums (a mix of albums and individual tracks). UMG and Sony have a 31% and 26.9% share of U.S. track equivalent albums, respectively. A tie-up with Warner Music Group, which had a 20.3% share, would be more palatable because the resulting company would have only a 29.9% share.
One has to wonder, however, just how concentrated the recorded music market can become before competition is damaged. Take nascent digital music services, for example. Each has to win the approval of all major music groups before it can make a serious entry into the marketplace. If the number of major music groups declines to three from four, each surviving major would gain an increased amount of bargaining power. As a result, fewer executives would get to decide which services launch and which do not launch. From a new artist point of view, too, fewer label groups would result in a harmful effect on choice and competition.
-- Ticketmaster has paired with digital agency IOMEDIA to create an online feature called Virtual Venue, which allows consumers to view their seat locations. Madison Square Garden, the New York Knicks and Penn State University Sports are among the first Ticketmaster clients to offer the new service.
Virtual Venue is a very slick improvement over typical venue maps. It allows a buyer to see a 360-degree view from any seat, compare the views of two seats side-by-side, see the difference between daytime and nighttime views, and view the stadium and parking lot from an aerial view. Virtual Venue can also be used as a touch-screen kiosk at a venue.
-- Group buying sites such as Groupon are not a fad, says Kartik Hosanagar of Wharton Business School. "Customer acquisition costs for small businesses are very high. Groupon allows small businesses to acquire customers in a fairly efficient manner." In addition, adds Hosanager, the business model "leverages the power of social networking and collective buying in very natural ways -- that's here to stay as well."
Group buying sites, which offer local deals if a predetermined number of buyers take part, are sometimes used to sell extra inventory for concerts. This practice is somewhat controversial in the music business as people worry that these services will make it more difficult to sell tickets at face value. (This concern was often heard at the Billboard Touring Conference and Awards earlier this month.)
Indeed, Wharton marketing professor David Bell warns companies from seeking short-term gain at the expense of long-term profitability: "You train customers to do things that are not ultimately that attractive. I think it's important for these businesses not to give away the farm."
(Knowledge @ Wharton)
-- Pandora founder Tim Westergren on the future of entrepreneurism in music: "My sense is that the music industry is going to see a huge influx of DIY entrants eager to enter an industry that has become much more accessible to the new participant. Should be great for innovation."
-- Yes, Spotify and record labels have a disagreement over a free, ad-supported version that is holding up a U.S. launch. "If we were to launch the service in the United States without free functionality, we could start tomorrow," said Spotify's European director Jonathan Forster (as translated by Google Translate).
Opinion and analysis of the day's music news.