by : Business, Oct. '12

The Merger of Universal and EMI

The Merger of Universal and EMI

Both European and American regulators have approved the $1.9 billion purchase of EMI by Universal. The deal was closed after months of heated debate about whether or not the merger would yield too much of a competitive advantage. In Europe, the European Commission (EC) approved it under certain conditions. In the US, the Federal Trade Commission decided that Universal and EMI had different product portfolios and that both companies could complement each other.

One of the duties of the EC is to assess mergers and acquisitions for anti- competitive practices. Universal’s acquisition of EMI was announced in November 20111, and the EC’s results were released this September.

A specific concern was that the merger could give UMG/EMI a privileged position in controlling prices and licenses, and that this would harm digital music retailers like iTunes and Spotify.  To prevent this, the EC required Universal to sell a third of EMI’s assets, including Parlophone Records (the popular label whose roster has Coldplay, Queen, Norah Jones, and Sigur Ros), EMI France, EMI Classical, Chrysalis Records, and Mute Records.

Another condition was that Universal refrain from including ‘most favored nation’ clauses in their contracts. The clause would make the new major the beneficiary of favorable terms granted by digital consumers to Universal’s competitors. By avoiding it, digital music providers can negotiate more freely with customers without fearing Universal’s power.  Under the compliance of these commitments, the EC finally decided that competition in the digital music market was safeguarded and that the merger would not impact consumers negatively.2

The US Federal Trade Commission launched a similar investigation in Washington, DC, and shared many of the concerns of the EC.3 The FTC decided that no more remedies were necessary in the US after the EC ruling. The two companies were, after all, European and the EC had stronger jurisdictional import over them. Moreover, the EC ruling appeared to please the FTC and it regarded the two businesses as complementary. The FTC, in short, seemed to say that the merger was beneficial and not overly empowering.

Nevertheless, the merger has caused concern for many consumers, organizations, and trade groups in the US and Europe.

The American Association of Independent Music (A2IM) has rallied against the presumed monopoly power of Universal Music. Indeed, Universal Music will now control about two fifths of the global recorded music market and the master recordings of The Beatles, Jay-Z, Katy Perry, Robbie Williams, and Pink Floyd.4,5 The organization is worried that the merger can impact consumer pricing as well as access to music.

Public Knowledge, a US organization that fights for digital rights and the openness of the Internet, warned about Universal amassing a dominant collection of copyright holdings. UMG, it argued, would use this collection not just to raise prices for consumers, but also to create a new tax on innovation among digital music services.6

The Future of Music Coalition, a North American think-tank based in Washington DC known for its support of independent artists and musicians, agrees. For them, the merger will stifle innovative music platforms and determine negotiating outcomes for licensing agreements. This would affect artists’ income negatively. Given that artists have as yet no organization that represents them directly, musicians of all types could see reduced compensations.

In Europe, IMPALA, a non-profit organization that stands for independent music labels, complained too. Allowing the biggest music company in the world to become even more powerful, it said, is “inconsistent with the [Commission’s] stated concerns about the digital market and how copyright is misused, as well as its ambitions for unlocking the potential of cultural and creative industries through their smaller actors”.7

The acquisition, though, follows the inexorable logic of a weaker recording industry, where the standard liquidation event is a survival merger. EMI has been on the selling block before and so has Warner. Seagram sold Universal to Vivendi, a French utility, some years ago. Sony absorbed Bertelsmann (BMG). Of the five groups dominating the business since the 1990s, only three remain: Sony, Universal, and Warner.

Lucian Grainge, UMG’s CEO, may claim that the merger will help UMG widen the music industry by, for example, doubling A&R and marketing investment. The hope may be there, but it is difficult to excite music retailers and artists with that sentiment.8 To revitalize the market, recorded music still has to sell in an economy that has many more entertainment alternatives than in the 1990s and where the typical transaction is not an album but a single song.

The deal is not expected to clear for another few months, and the purchase of EMI’s remaining third is still up in the air. In the meantime, UMG’s newfound power will be exercised in layoffs. There is speculation that the company will attempt to save around $163 million per year in redundant employees.9

By Mariana Migliore and Megan Dervin-Ackerman

Endnotes

1. Belke, Haven. “R.I.P. EMI.” Music Business Journal. Berklee College of Music, Dec. 2011. Web. Sept. 2012. <http://www.thembj.org/2011/12/r-i-p-emi/>.

2. “Press Releases.” EUROPA. N.p., 21 Sept. 2012. Web. 0 Sept. 2012. <http://europa.eu/rapid/pressReleasesAction.do?reference=IP/12/999>.

3. http://www.ftc.gov/os/closings/comm/120921emifeinsteinstatement.pdf

4. Hogan, Marc. “Universal, EMI Now Clear for Mega-Merger” SPIN Magazine http://www.spin.com/articles/universal-emi-now-clear-for-mega-merger

5. Sisario, Ben. “Universal Takeover of EMI Music Approved” New York Times. http://www.nytimes.com/2012/09/22/business/global/universal-takeover-of-emi-music-is-approved.html?partner=rss&emc=rss&_r=0moc.semityn.www

6. “Public Knowledge Disappointed in FTC Approval of UMG/EMI Merger” Public Knowledge. http://www.publicknowledge.org/public-knowledge-disappointed-ftc-approval-umgemi-

7. “IMPALA Makes Final Request to European Commission to Block UMG/EMI Deal.”Music and Copyright 466 (2012): n. pag. Web.

8. “Retailers Respond To Universal/EMI.” Music Week 32 (2012): 02. Music Index. Web. 30 Sept. 2012. http://web.ebscohost.com/ehost/detail?sid=1b4e8c72-1882-4d8f-9e36-8065243427a2%40sessionmgr14&vid=1&hid=13&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ== – db=mah&AN=79185352

9. Steiner, Rupert. “EMI Dumps Kyylie and Coldplay in takeover by Universal Music” Mail Online. http://www.dailymail.co.uk/news/article-2206962/EMI-dumps-Kylie-Coldplay-takeover-Universal-Music.html

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