Universal, EMI clear for mega-merger

By Emily Ornberg

After months of negotiations regulators from the U.S. and the European Union approved the merger of music giants Universal Music Group and EMI Group Ltd. on Sept. 21, increasing Universal’s market share by more than 8 percent.

The U.S Federal Trade commission unanimously approved the proposal, as did the EU, with the condition that the merged entity sell off some of its assets because of monopoly concerns.

Universal and EMI are two of the “big four” major global companies in the recording industry, alongside Sony Music Entertainment and Warner Music Entertainment. EMI has hosted multiple chart-topping artists, including The Beatles, Pink Floyd, Coldplay, Katy Perry and Lady Antebellum.

The merger solidifies Universal, which wll have roughly 39 percent market share, as the largest recording company in the world. According to 2011 Nielsen SoundScan data, Sony has a 29.3 percent stake in the industry, and Warner Music has 19.1 percent.

Dirk Carter, national director of sales at Universal, said this merger will decrease the size of an already small playing field.

“Currently our market share is at about 30 percent,” Carter said. “If you add EMI, that would be probably an additional 8 to 9 percent.”

The merging of major record companies is nothing new, Carter explained. He started his music career at Polygram Group Distribution in 1996, and the company was purchased by Universal three years later. Carter expects the transition will be similar.

“Back in the ’90s and ’80s, there were six major music distribution companies,” Carter said. “When Universal bought Polygram in 1999, there were five. Then Sony bought BMG in 2004, [and] there were four. Now there will be three.”

Carter said it’s as simple as merging and marrying sales systems of the companies together. Now, Universal is just responsible for a larger catalog of artists, he said.

The recording industry is no more consolidated than other areas of the music performance industry, explained Bob DiFazio, music business instructor in the Arts, Entertainment and Media Management Department.

“Live Nation has almost 40 percent market share in live performance, and Clear Channel has more than 40 percent market share in the United States in broadcasting,” DiFazio said. “So [this merger] actually brings [the recording industry] up to date with the other areas of the music business as far as the market share of the largest players in the music industry.”

Jason Kleve, vice president of business affairs at Universal, said the transition will not affect consumers and should hardly be noticeable to anyone besides those in the industry. The same records will be made, but the people behind the scenes may be different, he said. And doing the same jobs—perhaps better—which is the reason they were able to acquire EMI, Kleve said.

“[The acquisition transition] will be completely seamless,” Kleve said. “I can’t even think of an area where the consumer would even notice, let alone be affected. The only way they would notice is if they were to pick up a record and see that it had different labels on the back, or if you download it from iTunes, it will say ‘Property of Universal’ instead of ‘Property of EMI Recordings.’ That’s it.”

However, DiFazio said there is room for a noticeable shift. The rights to the catalog of previously protected work have shifted to new hands and may now be subjected to more “trite” uses, such as Pink Floyd’s music now being featured in a video game advertisement.

Regulators in the EU decided to limit the size of Universal’s market share to 40 percent to prevent the possibility of the company gaining complete control of the industry. In November 2011, EMI’s publishing rights were sold to Sony for $2.2 billion, meaning that a portion of profits from sales of Universal’s newly acquired catalog will go to Sony.

The EU also decided that in order to complete its $1.9 billion acquisition of EMI, Universal must sell some of EMI’s assets, including its 50 percent stake in the “Now! That’s What I Call Music” compilations and the Parlophone record label, with the exception of The Beatles’ catalog.

In addition, the EU required the combined entities to sell operations with €350 million ($457 million) in revenue, or about two-thirds of EMI’s European sales. Universal must divest many of EMI’s worldwide subsidiaries.

DiFazio said where these divestitures go is still up for debate, though they will most likely not land in the hands of Sony, Universal’s most direct competitor.

“If they sold their catalog to Sony, they would be shooting themselves in the foot,” DiFazio said.

EU regulators insisted on the divestitures because the size of the merged company might “have enabled it to impose higher prices and more onerous licensing terms on digital music providers.”

DiFazio said digital music providers—referring to interactive music websites such as Spotify or Grooveshark, where users choose each song themselves as opposed to an online radio website such as Pandora—may still find themselves in a bind because of their heavy reliance on acquiring the rights to one record company’s catalog.

“Hopefully Universal doesn’t price gouge [digital music providers], but they might have a better opportunity to do so,” DiFazio said. “Universal can easily say, ‘If they don’t play ball with us, then their site’s going to be horrible.’”

Kleve said although most skeptics fear Universal’s album sales will become too big and singlehandedly control the market, it is almost impossible. Kleve said Universal is a collection of artists and not a brand. In other words, nobody buys a record simply because Universal put it out, so raising the price of every single album would be irrational.

“It’s all individual by artist,” Kleve said. “I help decide the price [of an album] depending on how big the artist is or how many songs are on the album, not the fact that we own 40 percent so [we’re] going to charge more … It makes no difference.”

Kleve said he believes this merger can only help the industry.

“With that 10 percent of the market that [EMI is], we can do a better job with it and make more profit,” Kleve said. “It’s not like we were 20 percent and they were 20 percent and we suddenly became 40. We’ve already been good at innovating as the biggest and will continue to be.”

Kelly Deasy, a junior arts, entertainment and media management major, is fearful the shift in the industry makes it that much harder for artists to be recognized, or even seen as part of the picture.

“I think it’s a shame that it takes the artist out of the perspective and it makes the focus on the big monopolies that make up these major labels,” Deasy said. “It’s all about big business. As far as recording contracts go, it just makes the pot bigger, and it’s really not doing anything for the music.”

DiFazio said there is no difference in the way artists are treated despite the amount of record labels.

“If you want to get a major record deal, you are still going to have as equally a difficult time doing that,” DiFazio said.