But Senate panel can only advise FTC, not nix UMG-EMI deal
In a faceoff that should generate heat but may not ultimately sway regulators, proponents and foes of Universal Music Group’s $1.9 billion purchase of EMI Music’s label assets will appear before the Senate Judiciary Committee’s antitrust subcommittee in Washington on Thursday.
Investigation of the music megamerger is moving into its endgame, with the Federal Trade Commission weighing the deal domestically and the European Commission doing the same on the other side of the Atlantic.
On Tuesday, UMG acknowledged that the EC had lodged a statement of objections to the splicing (Variety, June 20). The Euro regulating body had previously approved the $2.2 billion acquisition of EMI’s publishing side by a Sony/ATV-led consortium after the selloff of some catalog assets.
UMG says the acquisition of a smaller rival is necessary in a business tranformed by new digital platforms and severely eroded by piracy. If the merger is approved, what was once six major record labels will be down to just three. Opponents see the combination as a way for music giants to regain control over pricing in a marketplace that, while wrenching to the industry, is creating new opportunities and choices for consumers.
It’s anticipated that witnesses at the Senate Judiciary hearing, including Edgar Bronfman Jr., director and ex-CEO at Warner Music Group, will make a plea to block the deal, saying it will lead to an anticompetitive market share and unreasonable clout over digital pricing.
However, even if the eight-member panel — chaired by Sen. Herb Kohl (D-Wisc.) and comprising five Democrats and three Republicans — concurs with the objections, it can do little more than offer an advisory take on the matter to the FTC.
In recent history, legislative opposition to a big music-biz merger has ultimately led to minor, ameliorating concessions on the part of the melding firms to ensure finalization of the deal.
In February 2009, the antitrust subcommittee held a hearing on the melding of the concert promotion and venue giant Live Nation and the ticketing behemoth Ticketmaster, then being weighed by the Justice Dept. That July, Kohl sent a cautionary letter to Assistant Attorney General Christine Varney, saying the merger raised “serious competitive concerns warranting thorough scrutiny.”
A federal antitrust suit was ultimately lodged in January 2010, but it was rapidly settled and the deal secured approval, with Live Nation and Ticketmaster making immediate concessions that included the licensing of ticketing software and the sale of a small subsidiary (Variety, Jan. 26, 2010).
Live Nation executive chairman Irving Azoff is among the witnesses who will speak in support of the UMG-EMI deal on Thursday. He will join toppers of the merging companies, UMG chairman-CEO Lucian Grainge and EMI Group CEO Roger Faxon, on the stand.
Leading opponents will be Bronfman, who was in the driver’s seat at WMG when Citigroup was measuring bids on EMI’s assets last year. He had long coveted EMI’s label side, but WMG — itself acquired by Access Industries for $3.3 billion last year — abruptly backed away from the table in the late stages of the auction following a reported bid of nearly $1.6 billion. After moving to chairman last August, Bronfman stepped down in January, but he remains a director.
If the UMG-EMI mating goes through, WMG would become a distant No. 3 among the major music firms. Last year, UMG and EMI together commanded roughly 40% of the domestic music market, according to SoundScan, while WMG took a little over 19%.
The other industry rep set to appear before the solons on Thursday hails from the U.K.: Beggars Group chairman Martin Mills. He is a leading player in Euro indie trade body Impala, which has been vocal in opposing the sales of EMI’s label and pub arms, and he will likely paint the transaction as a market-skewing threat to the indie community.
Gigi Sohn, prexy-CEO of D.C.-based digital rights org Public Knowledge, will offer other opposing points. Along with the Consumer Federation of America, Public Knowledge assailed the UMG-EMI sale in an April letter to the FTC (Variety, May 14).
In a detailed white paper jointly published June 14, the groups said, “Under the antitrust laws the UMG-EMI merger represents a business agreement that constitutes ‘an unreasonable restraint of trade’ that will ‘substantially lessen competition’ and constitutes an unfair method of competition, which is unlawful because it is ‘likely to enhance market power.'”