This post was authored by FMC policy intern Joseph Silver.

Pending approval by the Federal Trade Commission, the European Commission and other American and European antitrust regulators, the U.S-based record company Universal Music Group (UMG) intends to merge with the UK-based EMI Music Corporation to form one mega-label. Last November, UMG agreed to a $1.9 billion bid for EMI’s recorded music business. (A separate effort to acquire EMI’s profitable publishing division has been launched by Sony.)

If the label deal is approved by U.S. and E.U. regulators, the combined company would stand to control approximately 40 percent of the U.S. recorded music marketplace and a large chunk of the European music market as well. Furthermore, the number of “major” labels would again fall — this time from four to three (or three to two, since Warner Music holds only approximately 15 percent market share). According to Digital Music News, UMG and Sony together would command a whopping 73 percent market share of total recorded music sales. 

A little history: Over the past several decades, the major labels have gradually been moving from a state of competitive balance to one of control by a few large corporations. Between 1988 and 1998, there were six major labels in the U.S., referred to as “The Big Six.” Then, after UMG absorbed Polygram, they were called “The Big Five” (1998 through 2004). After that, Sony and BMG merged, and we had the “The Big Four” (2004 through 2012). Soon, if the UMG-EMI merger is approved, we will be left with “The Big Three” or perhaps more accurately, “the Big Two,” given Sony’s and UMG’s respective commanding shares of the marketplace. 

Regulators are considering the labels’ arguments that this merger is necessary given their relatively weakened position in the digital era. UMG asserts that unauthorized distribution and even legal services like Amazon and iTunes  are damaging the larger music landscape, and that this merger will help them compete in an ever more difficult music market. The FTC and others will be closely monitoring this proposed merger in the coming weeks and the Senate Judiciary Committee plans to hold a hearing on the matter as well.

In response to this pending merger, a number of consumer groups, including Public Knowledge and the Consumer Federation of America, in addition to companies including Warner Music Group, have publically expressed their opposition to the deal, and their disagreement with UMG about what the merger will mean for the future of music. On February 15, 2012, our organization joined the mix, and sent our own letter to the FTC, voicing some of our concerns about the potential implications for musicians, fans, and music technology providers. 

One primary concern is that a more powerful UMG would have tremendous leverage in the terms of licensing agreements. As a result, tomorrow’s amazing new platform for music may not arrive. The growth of the legitimate digital music marketplace is dependent on services being able to bring robust catalogues to market. If UMG is able to dictate which service (and which kind) has access to more than 40 percent of all recorded music, they will have an effective veto over those seeking to deliver legal, licensed services to consumers. Witholding catalog could only fuel unauthorized distribution, which clearly harms artists and rightsholders alike. Currently, no single label or publisher dominates the market, and a somewhat competitive balance remains. If this merger is approved, UMG might aim to recreate scarcity in order to shield their traditional operations at the expense of new ways of doing business. Where this impacts artists’ ability to be fairly compensated, we become concerned.

Musicians have historically had very little leverage or bargaining power in the marketplace. If this merger is allowed, UMG would be in a strong position to influence artist compensation on emerging digital services and thereby perpetuate artists’ lack of leverage. And we’re not just talking musicians signed to majors. Independent artists and labels would ultimately be subject to the terms set forth by the two giant record labels — especially because, unlike the majors, independents lack the bargaining power to negotiate for equity stakes and other alternative forms of compensation.

Given this state of affairs, if UMG is able to merge with EMI and control 40 percent of U.S. recorded music, this sheer market power could ultimately inhibit the growth of the legitimate music marketplace. That’s bad news for everyone, from creators who deserve to be paid, to fans who should be experiencing the benefits of innovation. We’ve been scratching our heads to recall when a huge merger has been beneficial to the music community. Whether it’s radio stations, record labels, or ticketing services we’re hard pressed to think of a circumstance where consolidation in ownership has resulted in better conditions for consumers or artists. We’re not antitrust lawyers (probably should’ve mentioned that up front!), but all indications are that this deal is no different. That’s why we’ve spoken up against it.

What do you think? Tell us in the comments.

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