Antitrust News: Will Universal Music's Purchase of EMI Music's Labels Give One Company Too Much Market Power?

On Friday Sept. 21st, 2012, as reported by Reuters, "EU antitrust regulators cleared Universal Music Group [UMG] to buy British record company EMI's recorded music unit [EMI] for $1.9 billion... after the Vivendi-owned company promised to sell some of EMI's most valuable record labels."

Why does this mega-music business deal matter to New World filmmakers?

The proposed Universal/EMI merger would shrink the recording industry from 4 to 3 majors and transform the market from “moderately concentrated” to “highly concentrated” as defined by the Dept. of Justice [DOJ] and Federal Trade Commission [FTC] merger guidelines.

Consolidation in the music business (if the UMG/EMI deal goes through, the combined company will control roughly 40 percent of the worldwide recorded music industry) could make it harder for fans to get music from new channels and apps online. The potential for barriers to competition that could result from monopolistic control of a big library of content (e.g., centralized corporate control of music rights - such that one company can set the prices for all online music) has implications for online filmmakers too.

Just as when one company controls almost half of all music online - there is a fear that centralized power in online film could become a barrier to innovation.

So New World filmmakers should pay close attention to what happens to the UMG/EMI deal when it comes before the FTC in the US. The FTC is the last hurdle to this mega-consolidation - and the deals that these big music companies are making with regulators (agreeing to sell off certain assets, to avoid enforcement of antitrust laws) may have huge implications for how online films will be priced and distributed in the coming years.

As reported in Reuters on August 31st, 2012, independent antitrust groups have expressed concern that if EMI becomes part of UMG, the new company will have too much power in the music industry, including "life-or-death power over digital entrants that rely upon being able to license music." In other words, once the merger goes through, UMG will control a huge library, and they might refuse licenses to new online music distributors - making it impossible to create the new Spotify or Deezer.

Here's how the argument against the UMG/EMI consolidation was made in June 21st, 2012 testimony before Congress by Gigi Sohn, the head of consumer advocates Public Knowledge: "The major labels can thwart or seize control of innovation with anticompetitive behavior against new market entrants that cannot operate without sound recording licenses from major labels. The merger between UMG and EMI would create a new super-major label that controls 41% of the recorded music market, and could use that market share to stifle the development of new digital platforms while raising prices to the detriment of both musicians and their fans. To prevent this result, antitrust authorities must block this merger to protect the future of innovation, competition, and pricing in the music business."

But some pro-merger voices (like Forbes) claim that the critics of the UMG/EMI merger are relying on "outmoded antitrust thinking and are out of touch with the real dynamics of the music industry."

For example, here's how Forbes argues that music competition will survive even after the UMG/EMI merger: "[C]ritics argue... if UMG raised prices now it would be undercut by EMI and lose sales, but that if the merger goes through, EMI will no longer constrain UMG’s pricing power. However, the vast majority of EMI’s music is not a substitute for UMG’s. In the real world, there simply isn’t much price competition across music labels or among the artists and songs they distribute. Their catalogs are not interchangeable, and there is so much heterogeneity among consumers and artists (“product differentiation,” in antitrust lingo) that relative prices are a trivial factor in consumption decisions: No one decides to buy more Lady Gaga albums because the Grateful Dead’s are too expensive. The two are not substitutes, and assessing competitive effects as if they are, simply because they are both “popular music,” is not instructive."

While the EU has approved the deal (based on concessions from UMG and EMI, including disposal of EMI's Chrysalis, Mute, and Classics labels and UMG's sale of their Sanctuary and Co-op Music labels), the UMG takeover of EMI still needs approval from the US Federal Trade Commission.

While regulators in Japan, New Zealand, Canada and now the EU have approved the deal, I expect rival record labels (like Warner's), consumer groups and musicians to ramp up their protests to the FTC.

Will the FTC accept the concessions that UMG and EMI have already made to win approval in the EU? Will the FTC block the merger? Or perhaps, will the FTC ask for more concessions?

If you're concerned about this merger - you can email the FTC or members of Senate antitrust subcommittee — like Senator Herb Kohl (D-Wis.) and Senator Mike Lee (R-Utah).

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