At 1:30 p.m. today, the head of Universal Music Group and EMI will appear before a Congressional hearing to argue for the proposed sale of EMI’s music catalog to Universal. Both Lucian Grainge and Roger Faxon will act as witnesses in support of the sale before the Senate antitrust subcommittee, while Live Nation chairman Irving Azoff will also appear at the hearing to back the bid. Warner Music Group board member and former chairman/CEO Edgar Bronfman Jr. will join Beggars Group chairman Martin Mills and Public Knowledge president Gigi Sohn in the group who testify against the deal.
In his prepared testimony, Grainge speaks about EMI’s storied history and how the challenges it has faced in recent years have hampered its ability to compete.
“With Universal’s infusion of resources and commitment to investing in artistic development, there will be a healthy future for the company. We are absolutely committed to investing in EMI as a distinct business that can help us develop even more music and more choice for consumers and fans everywhere. EMI’s labels will be reinvigorated and artists will have more choices, which will lead to more competition in this dynamic market.
“Furthermore, Universal will bring its expertise in distribution through multiple channels to EMI. Universal has built a strong record of selling, licensing and distributing music widely. Universal has 123 active digital music deals in place in the United States right now. Universal’s expertise will add value to EMI’s current and catalogue recorded music assets, fostering the development, expansion, and marketing of EMI’s assets to their full potential.”
He also cites the indie sector as a formidable competitor in the global market. “We are not just competing against the other major labels, Sony and Warner,” he is expected to say. “We compete with the significant ‘indie’ market which, according to A2IM, represents over 30% of the market in the U.S.
Azoff will argue for the merger, telling the senators that major shifts in the music business have created a competitive landscape where three majors still won’t be able to control either artists or fans. “I work with acts big and small, some that are household names and some who should be but just haven’t yet gotten there yet,” Azoff’s prepared statement reads. “Let me be very clear — none of them have to sign to a major label anymore. Majors cannot sign every act, and the door is open for many others to do so.”
He contines: “As for the broo-ha-ha around this deal, Mr. Bronfman has been talking about combining Warner and EMI for the better part of a decade. … Warner had a chance to outbid Universal in this process – but chose to walk away. Now, they regret their decision, and are spending millions to fight the deal. Well, I don’t think the government should step in to give them another bite at the apple – that is not how our free market economy works.”
In his lengthy prepared statement, Bronfman will warn the subcommittee a post-merger UMG “would possess far too much power” and will bring “grave consequences for consumers and the future of digital innovation.” He believes UMG would wield too much power in digital innovation – or lack of – and could stymie important digital revenue growth.
Bronfman will offer some proof that a more dominant Universal could have a powerful hand in determining the digital services that get to market and what features they can have. He suggests Universal’s decision not to license to Beyond Oblivion led to the company’s bankruptcy (however, a detailed Evolver.fm article suggests it was destined to fail with or without licenses from labels) and he blames the company for blocking Lala’s desire to integrate with Facebook for its forced sale to Apple.
“Universal/EMI would be almost as large as Sony and Warner combined,” his testimony continues.”So you could think of this merger as creating one innovation-stifling dominant player, Universal/EMI. [A chart, citing IFPI, shows UMG’s revenue share rising from 31.3% to 41.7% after merging with EMI, while Sony remains at 28.5%, Warner at 20.3%, and “other” at 9.4%.]
“Some of the Subcommittee members may note parallels between Universal/EMI and the recently attempted AT&T/T-Mobile merger, which the government successfully sued to block. Had the AT&T/T-Mobile deal gone through, the combined company would have controlled 43% of the wireless revenue in the U.S. Similarly, if the Universal/EMI merger were to go through, that company would control about 42% of the recorded music revenue in the U.S. Significantly though, Universal/EMI would have an even larger share of the most popular music. For example, in 2011, Universal/EMI would have controlled 51 titles of the Billboard Hot 100 – more than half. …
“The potential level of concentration that would result from the proposed Universal/EMI merger has never been seen before in this industry. No record company in the SoundScan era has had a U.S. market share greater than the more than 30% that Universal commands today.”
The deal is also facing regulatory scrutiny in the EU, where the competition commission is currently readying a statement of objections which is expected to outline some of the concessions Universal will need to make in order to allow the sale to go through. Universal released a statement to Billboard.biz on June 8, saying “when we receive the Statement, we will prepare a detailed response to the Commission which will address the concerns outlined in this procedural document.”
In April, the EU approved the sale of EMI Music Publishing to Sony/ATV Music Publishing in a separate deal.
Public Knowledge also has been opposed, detailing in a report filed with the FTC that the company that would emerge from the approval of the deal would “have a strong incentive and increased ability to exercise market power, particularly in undermining, delaying or distorting new digital distribution business models.”
Yet in North America the merger has won the approval of the American Federations of Musicians as well as the Screen Actors Guild and the American Federation of Television and Radio Artists. According to the L.A. Times, Kim Roberts Hedgpeth, outgoing co-national executive director of SAG-AFTRA said the merger would both keep EMI from drifting into “oblivion” and save “jobs which “would be at risk should EMI wither further or be sold in pieces to fuel quick profits for capital investors.” Universal has also argued in the past that online piracy makes it impossible for any one record label to dominate the industry as many have stated.