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Universal Music, EMI defend fusion before skeptical senators

by Ira Teinowitz | Published June 22, 2012 at 9:00 AM

Top executives at Vivendi SA's Universal Music Group and at EMI Group Ltd. Music touted UMG's $1.9 billion deal for EMI Music to a Senate Judiciary Committee panel on Thursday, June 21, to often skeptical senators.

The executives argued that traditional criteria used to measure the antitrust impact of deals in the sector may not fit a fast-changing music industry where consumers are increasingly accessing artists' work through digital media and where music labels hold less sway. A merged UMG and EMI Music would have a 40% share of the recorded-music market and cut the number of major players to three from four. The deal is currently under review at the Federal Trade Commission and at the European Commission, which is expected soon to publish a statement of objections outlining its concerns about the transaction.

"I think market share in this industry is far less relevant than maybe in others," Universal Music Group Chairman and CEO Lucian Grainge told Sen. Richard Blumenthal, D-Conn., at the hearing. "The artists make the market. You are as good as what choice you make and what artists you've signed."

EMI Group CEO Roger C. Faxon suggested that the boom in digital music lessens worries about antitrust concerns.

"Digital distribution has created a music meritocracy," he said. "The explosion of media has taken finding music from hands of editors or radio producers and put it firmly in the hands of fans. These fans don't care about market position. They care about the music. The market is more crowded than ever before. If there ever were antitrust issues implicated by label consolidation, they are not present today."

The comments came as senators including Blumenthal, the panel's chairman Sen. Herb Kohl, D-Wis., and Sen. Al Franken, D-Minn., repeatedly questioned elements of the deal.

Kohl at one point, noting a statement from Faxon last year that EMI Music is a strong competitor, asked why the sale to one of the music company's main competitors met the public interest.

Faxon noted that the sale followed Citigroup's February 2011 takeover of EMI in a debt restructuring.

"I don't think it is not in the public interest," he said. "I don't think it is a bad thing. There are many scenarios I could map out that are good things to happen, but none of those were available."

"Our coming together will benefit consumers, artists and all those committed to a diverse and health business," said Grainge.

One music industry heavyweight, Live Nation Entertainment Inc. Chairman Irving L. Azoff, endorsed the deal.

He told senators the days of major labels having a hold on artists are gone, with independent labels signing a growing portion of artists.

"We are in a quirky, crazy world. What I like is for that for the first time artists have real power," he said. "Labels used to be gatekeepers for fans. "Today, the fans are their own gatekeepers. The people concerned about a combined Universal Music and EMI don't get what is going on in the music business."

The elimination of EMI as a separate company would likely foster more room for independent labels, he argued.

Countering that support, Edgar Bronfman, former chairman-CEO and now a director of the Warner Music Group., Martin Mills, founder and chairman of Beggars Group Ltd., and Gigi Sohn, president-CEO of Public Knowledge, vigorously attacked the deal.

They told senators it would give the enlarged company too much clout that could be used to either prevent new digital platforms from getting vital licenses, or to drive up prices, and would leave fewer artists supported.

Mills called the deal "the worst outcome" for competition in the music business.

"I have seven letters to say what this is about: C-o-n-t-r-o-l," said Mills. "This is about leveraging and getting more than their fair share. If this transaction goes through, the next great artist may never be found."

Bronfman, who had talked about buying EMI himself, said UMG-EMI's size would make it difficult for rivals to fully compete.

He said the digital music market has grown because companies developing new digital platforms could approach any of the music companies and then gradually build their catalogs. Itunes, he noted, started when EMI Music became the first music company to sign on.

"This merger would obliterate the competitive dynamics that currently exist," he said. "One company could unilaterally determine which services live or die. It would be able to coerce ever more onerous terms, jeopardizing innovation, restricting choice and increasing prices."

Franken noted that UMG had insisted on shares in Internet companies it had licensing deals with, and refuted suggestions the expanded UMG would wield too much power.

Grainger said repeatedly that it would be in neither the company nor its artists' interest not to sign on for new forms of providing music.

"We are absolutely committed to getting out our artists to as many consumers and fans as possible. We would be insane not to make them available," he said.

While most of the senators at the hearing expressed concerns about the deal, the panel's ranking Republican, Sen. Mike S. Lee, R-Utah, noted the threats of music piracy and suggested the deal could have some benefits.

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