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Uni/EMI under the spotlight on Capitol Hill

By | Published on Friday 22 June 2012


So, in what wasn’t a particularly good advertisement for the music industry’s diversity policies, five aging white men took to the stand in Washington yesterday to discuss Universal’s proposed bid to buy the EMI record companies.

As previously reported, while the US Federal Trade Commission and the European Union’s competition regulators are officially investigating the proposed merger, US Congress decided that it wanted to throw the spotlight onto the deal for an afternoon too.

There were no real surprises in the statements delivered by Universal top man Lucian Grainge, EMI chief Roger Faxon, Live Nation CEO Irving Azoff, former Warner CEO Edgar Bronfman Jr and Beggars Group top man Martin Mills, though some commentators felt Grainge came off as most shifty in his delivery, while Mills seemed the most genuine and honest of the guys at the table, as you’d probably expect when the corporates and indies line up side by side.

All that said, it was Irving Azoff, there to speak up for the deal, who perhaps delivered the stand out home truth of the day – noting that Warner Music board member (and former CEO) Bronfman Jr opposed the Universal/EMI deal, at least in part, because of sour grapes. After all, Bronfman, having spent seven years trying to engineer the EMI Warner merger, had to watch his long held dream collapse when, having walked away from the negotiating table at the last minute in a squabble over price, Universal snapped up the EMI record companies from right under his nose.

Grainge insisted that everyone will be a winner if and when the Universal and EMI labels unite, saying, according to the Financial Times: “Our coming together will benefit consumers, artists and all those committed to a diverse and healthy music business”. But Mills countered that the only people who would actually benefit would be Universal’s owners and management, who were, he claimed “monopolists” seeking market power. Or, in Bronfman’s words, a combined Universal EMI would be “one innovation-stifling dominant player”.

Much of the debate focused on the digital domain, and whether Universal/EMI would have too much power in deciding which digital platforms succeed or fail, because once the two record companies’ catalogues are combined no digital service could realistically launch without them on board (though arguably that’s already the case with Universal at its current size).

Grainge insisted that Universal had no interest in refusing to licence any credible digital business, while Faxon backed up the mega-major chief’s claims by stressing just how many digital platforms the two men’s record companies had now licensed around the world, some operating business models radically different to any content distribution platforms that existing ten years ago.

Which is true, of course, and Universal is often the first to embrace new approaches to delivering digital content (while Bronfman’s Warner has always proven to be more conservative). That said, as many commentators have noted, the issue isn’t so much whether or not a combined Universal/EMI would continue to licence new digital services – it would – but on what terms.

Much secrecy surrounds the deals struck between record companies and digital music firms – especially in the streaming and subscription service space – and it’s widely assumed that the majors, and especially Universal, are negotiating much better rates and advances than smaller content owners, because no service can launch without the mega-major’s catalogue.

Grainge and Faxon insisted that, in the internet age, with the old media and retail monopolies smashed, success in the record business is now all about having great music that people want to download or play. But that’s not totally true; if one set of rights owners are earning significantly more for every play than another, then a big part of success is also securing the highest rates when you do the initial deal, and that’s where the major players have the advantage. Though with Universal and Sony already so dominant, whether having one less mini-major in the mix will actually make any difference is, probably, debatable.

Despite the differing opinions in the room, the debate was, in the main, amicable, and it’s hard to say which side came out strongest in the end. Though what really matters, of course, is those aforementioned investigations being undertaken by the FTC and EC. According to the latest reports, Universal now has until 3 Jul to respond to the previously reported Statement Of Objections to the takeover set out by the European Commission earlier this week. While the major has so far not publicly proposed making any concessions to smooth through the EMI deal, it is thought that this could be the moment where remedies are formally put on the table.

As previously reported, there are also other smaller investigations into the deal going on in some other territories, and, as also previously reported, regulators in New Zealand have now green lighted the deal without demanding any remedies. Welcoming that decision, Universal told CMU last night: “The New Zealand Commerce Commission undertook a very thorough investigative process under chairman Dr Mark Berry, working with our legal team there and with Universal Music New Zealand Managing Director Adam Holt. We continue to work with regulators in other jurisdictions, and remain confident of further clearances”.

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