Thursday 8 March 2012, 12:12 | By

US lobbying group publishes letter opposing EMI deals

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So, we know what’s going on in Europe over the proposed takeover of the EMI record company by Universal Music and the EMI publishing business by Sony/ATV, but what about in the US, where the Federal Trade Commission is somewhat further on with its investigation into the competition implications of the deals than the European Commission?

Well, generally it’s assumed that deals like this will have a tougher time working their way through EC regulation than American anti-trust processes, though that’s not to say there aren’t opponents busy lobbying against Universal and Sony’s EMI proposals Stateside too. Not least Warner Music which is expected to speak out against the acquisitions on both sides of the Atlantic.

And this week Public Knowledge, a campaigning group that lobbies on internet and intellectual property issues, also submitted a letter to the FTC arguing that an expanded Universal and Sony would be very bad news indeed for the emerging digital music market. In its letter, also published on the group’s website, PK urges FTC officials to consider how the deals will “impede investment, innovation, and therefore competition” and affect “the development of music distribution and other services that ultimately benefit musicians and their fans everywhere”.

It continues: “[Public Knowledge has] long supported policies that promote innovation and creativity in the digital environment. A critical part of this mission is encouraging the growth of services that help artists develop their craft and reach fans. These sorts of services increase the availability of content, help drive innovation, and promote a healthy, competitive environment in which consumers are the winners”.

But, PK fears, such innovation and creativity will be hindered if any one rights owner becomes so big that it’s impossible to enter the digital music market without them on board, enabling them to make unreasonable demands to secure participation. The letter continues: “As audience demand currently turns to a streaming, cloud-based model, new distribution services will have trouble launching without a major label willing to be the first to grant licenses, and ultimately may never succeed if a single major label can withhold 40% of the recorded music market even after other labels have started working with them”.

It adds: “Even in today’s marketplace a major label can wield sufficient power to demand that potential new digital music services pay the label hefty advances and a high percentage of future revenue, or give the record label an equity stake in the new company. A combined Universal/EMI entity would only be able to exert even more control over new music services … [because] a post-acquisition Universal would be in a position to further its dominance by withholding licenses for its recorded music and music publishing rights”.

In conclusion, the letter goes on: “As a result, both musicians and audiences will suffer for lack of innovative competitors in the online music service marketplace. We therefore are concerned that allowing these two transactions to proceed not only will thwart burgeoning digital music innovations, but will potentially drive up prices and minimise choice for consumers. We hope you will carefully examine these issues in your review of the proposed transactions, and are happy to meet with your staff to further discuss our analysis”.

Of course none of these arguments are new, and in Europe indie labels trade body IMPALA will be presenting similar views. Universal and Sony, for their part, will have tried to counter these arguments in their initial submissions to the EC and FTC. On the digital licensing point they will argue that certain digital operators control such large online audiences that the content owners cannot afford to not do a deal with them, assuring equality at the negotiating table. Moreover, the music and wider entertainment markets are more competitive now than ever before, which will keep prices down.

And, Universal in particular will say that it’s frequently been first to sign up to new digital business models – including some that didn’t get off the ground because other rights owners wouldn’t play ball – and therefore can’t be accused of using its existing size to stop digital innovation (though opponents would probably counter that the major’s participation usually comes at quite a price).

Speaking to Bloomberg in the US in response to PK’s letter, Universal rep Peter Lofrumento, said that the company has “every business reason to continue licensing our music to as many digital platforms as possible”, while adding that “reinvestment in EMI will expand the output of new music and create more opportunities for artists, while supporting digital innovation and consumers’ access to music”.

The investigations on both sides of the Atlantic are ongoing. Universal and Sony are adamant they will succeed completely, opponents remain confident one or both of the deals with be blocked, while many commentators expect approval but with remedies, including selling off sizable portions of EMI’s catalogue and/or frontline operations, or maybe even the VEVO platform in which both majors have a significant stake.

You can read the Public Knowledge letter here.

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