EMI Universal Deal Cleared, Giving One Company Veto Rights On Pretty Much Any New Music Service

from the well-that-could-be-a-problem dept

This isn't a huge surprise, but EU and US regulators both approved Universal Music's deal to buy EMI today. Under the terms from the EU, they will have to sell off some EMI assets, including the iconic Parlophone label. There is a part of me that thinks that the complaints against this deal are a bit overblown, seeing as it's about linking up two dinosaurs who've failed to adapt -- and bringing them together won't fix any of the major problems those two labels face. But there are some very real concerns about how this could impact innovation online. For better or for worse, setting up digital music services today requires doing deals with the major labels. If you're just doing webcasting (i.e., broadcast) there are agreed upon -- but insanely high -- rates you can use (more on that later today). However, if you're doing anything interactive or offering digital downloads, then you have to cut deals.

A story earlier this week at the Huffington Post, does a really nice job laying out how this deal effectively gives a few Universal Music execs veto power over any new music startup. Because if you're launching a music service today, you generally want it to offer a lot of popular music, and between Universal Music and EMI, they control a huge portion of that market -- much of it historical back catalog stuff, but also some of the more popular mega-acts today. The HuffPo writeup notes that Steve Jobs played the labels off of each other to get them to sign on to iTunes. But, today, the new UMG could control that process.

According to Paul Vidich, a former Warner Music executive who closed the iTunes deal, the pending merger between Universal and EMI could put an end to that state of affairs.

"Without a UMG-EMI license, they won't have a business," said Vidich, referring to new digital startups. "Within the new UMG-EMI there will be only a handful of senior executives who make these key licensing decisions. So this small group will become the gatekeepers for music startups that require these licenses. The psychology, pay packages and strategic interests of these executives will have an outsized impact on diversity and innovation in the entire online music industry."

Remember, Universal is the company whose former CEO, Doug Morris, once gleefully explained how he didn't understand technology and didn't even try to hire someone who did, because he wouldn't know how. Amazingly, his board let him keep his job for many years (he's since moved on to head up Sony Music). Morris' replacement at UMG, Lucian Grainge, has talked about how the CD format is important to the company's future. And he's now basically the guy with veto power over any new music service.

That does not bode well for the online digital music marketplace.

Filed Under: consolidation, digital music services, major labels, music
Companies: emi, riaa, universal music

Universal Music Claims Piracy Justifies Monopoly, Wants The Power To Control Digital Music Services

from the say-what-now? dept

In a short article discussing how European antitrust officials don't appear to be too keen on Universal Music buying up EMI, and turning Universal Music (already the largest music label) into a truly dominant player in the market, there's this little tidbit:

Unnamed sources at Universal have briefed journalists that the competitive threat of digital piracy means consolidation should be permitted. Critics have pointed out that the merged entity's 40+ per cent market share would make it the king-maker for digital music services – and that no service would then survive without Universal's catalogue.

We were just discussing how the labels were looking to turn the screws on Spotify to try to wrench even greater profits out of the still unprofitable company. But really, when you put these two sentences side-by-side, it just shows how ridiculous the major labels -- and particularly Universal Music -- are today. Because of "piracy," it needs to be able to merge to create an even larger aggregator of back catalog music... to restrict that same music from appearing on new and innovative digital music platforms, unless those platforms pay more than is reasonable.

Get it? Universal Music's response to piracy is to create more piracy and limit innovation. The geniuses at the company (and, remember, this is the company whose former CEO once admitted that he was too clueless to even hire someone who might explain how modern digital technology worked -- and who not only didn't get fired for this admission, but was able to leverage his cluelessness into a new job running Sony Music last year) are basically saying that the only way they can compete with "piracy" is to so dominate the market that any company offering a music service has to do a deal on their terms, or not include its catalog. In other words, it wants veto power (and the power to extract ridiculous and unsupportable rents) on music service innovations.

Of course, that's a really stupid plan for a bunch of reasons, but let's call out the two big ones. First, the company's problems are not caused by "piracy", but by a stubborn unwillingness to adapt to a changing market. Second, restricting innovation in the digital music space will actually increase the amount of infringement, by (1) making it unprofitable for most companies to be in that space and (2) limiting true innovation and the necessary competition among services that leads to the kind of new innovations that consumers want. Instead, it'll just drive them to go back to what works: open infringement.

Filed Under: digital music services, monopolies, music, recording industry
Companies: emi, universal music