×

After Disney-Fox Acquisition, Should Movie Business Be Wary of What Happened to the Music Industry?

With Fox and Disney announcing their anticipated multi-billion dollar mega-merger on Thursday, the movie industry is poised to experience the impact of consolidation and potential ripples to the companies’ employees, projects and talent. It would behoove the studios to consider the music business as a cautionary tale, albeit one that straddles the pre-crash years and the post-2008 new world order.

Record labels combining their resources and rosters is nothing new. As far back as the 1970s, Steve Ross formed the original WEA (the precursor of the Warner Music Group) by consolidating the Warner Bros., Reprise, Atlantic and Elektra/Asylum labels under one umbrella. That merger was followed by an endless succession of similar alliances with the big players — EMI, Sony, Universal — stacking up iconic music brands like they were balls being racked for a game of pool.

Truth be told, record companies and their corporate brethren have relationships that could be described as on-again, off-again. Music industry consolidation has been fueled by a number of disruptive shifts over the first part of this century. Ravaged by piracy, lagging behind on the shift to digital and distracted by a legal caseload that made every music-loving college student an infringer, the booming CD era of the 1990s yielded a bloated industry that thought the good old days would never end. But did they ever. The industry shrunk by 30 percent once the recession rolled around in 2008. And that was after two major acquisitions at the height of the market, Sony’s absorption of BMG, completed in 2008, and Terra Firma’s purchase of EMI in 2007.

Jim Urie, who experienced the merger merry-go-round first-hand during his years heading up Universal Music Group Distribution, insists all that consolidation has been a boon for the music industry.

“Size matters,” he says. “And that gives companies the financial means to make the capital investment in the systems that are needed for the more complex royalty payments and big data that come from streaming. It’s also given the companies the wherewithal to sign and develop new artists in the marketplace. Just look at this year’s Grammy nominations for proof of that. Though I’m not sure if that applies to the motion picture industry.”

But like the movie industry, the giants in the music space fall under umbrellas of multinational corporations whose bread and butter is not the latest album by Adele or Taylor Swift. Universal Music Group is currently owned by French media conglomerate Vivendi, after acquisitions by Japanese electronics manufacturer Matsushita in 1990 and Edgar Bronfman’s Seagram in 1995.

In 1999, Seagram acquired PolyGram’s music holdings, merging the companies. Doug Morris, using his own experience from the turmoil of his messy exit from Warner Music Group, was instrumental in bringing the two companies together, handing the torch over to his hand-picked successor, Lucian Grainge, who has continued to guide the label to the top of the marketshare ladder. Today, Vivendi continues to be UMG’s corporate parent, despite occasional rumors of seeking a buyer for its music holdings. The latest self-touted price tag for UMG: $22 billion.

In 2003, Sony Music merged with BMG, a unit of German media giant Bertelsmann, combining the No. 2 and No. 5 music companies in terms of market share. Sony BMG became home to a wide roster of acts, and multiple imprints (among them: Columbia, Arista, Epic, Jive and RCA) catering to popular genres. But equally important was an effort to shore up a flood of looming layoffs, executives said at the time. The result: an initial culture clash between the Germans and the Japanese at a U.S.-based company. In the end, Sony bought out BMG’s share of the joint venture in 2008, having absorbed a significant portion of its staff, and pressed on finding success of unprecedented proportions following the arrival of Adele — who, appropriately enough, came through a joint venture between Columbia Records and XL Recordings.

A less rosy picture was that of Guy Hands’ 2007 purchase of EMI. The sale price: $4.1 billion, much of which private equity firm Terra Firma borrowed from Citigroup. In hindsight – and even immediately after the deal closed – many would agree it was overvalued. Hands himself thought so, and tried to sue Citi for fraud in 2009, contending that because of the company’s “misrepresentations, Terra Firma paid a fraudulently inflated price for EMI, the equity it invested and the debt it incurred.” In 2016, Hands dropped the suit.

Meanwhile, in 2011, EMI was again put on the auction block in a year-long process that would end with two victors: UMG, which bought most of EMI’s recorded units for $1.9 billion while Sony/ATV purchased the publishing arm for $2.2 billion (Parlophone and its associated acts, like Coldplay, went to Warner Music). The deals closed in Oct. 2012. Today, UMG, home to such labels as Republic, Interscope, Capitol, Def Jam, and Island, as well as Universal Nashville and UMe, leads in market share by 7% over number two, Sony, according to 2016 metrics. And it could be argued that centralizing shared services while offering creative independence to individual labels has produced a lean, mean machine – and thanks to the competitive spirit chairman and CEO Grainge espouses, a fighting one, too.

With only three major label groups operating today, that leaves Warner Music Group, which has also seen multiple owners in recent decades, including a 14-year home at Time Warner, arguably the largest company in the world when it was formed in 1990 by merging Time Inc. with Warner Communications. Later under the umbrella of AOL Time Warner, and then split off from the larger entity, Warner’s music assets were sold in 2004 to a consortium of investors led by Edgar Bronfman Jr. for $2.6 billion. WMG remains independently owned today, following a 2011 sale to Len Blavatnik’s Access Industries in 2011 for $3.3 billion.

Is the industry healthier for all these changes?  With streaming in line to become the music business’ major form of distribution – itself a consolidation and elimination of traditional middle-men — this economic Darwinian survival of the fittest has conceivably created a music industry that is better prepared to act swiftly and efficiently in what has become a 24/7 on-demand content world. Though which company will emerge as a leader in the digital era remains to be seen.

Daniel Glass, Aurora, Sir Lucian GraingeSir Lucian Grainge's 2017 Artist Showcase, Los Angeles, USA - 11 Feb 2017
CREDIT: Charbonneau/REX/Shutterstock
Indeed, it may be an indie. Glassnote Records’ Daniel Glass (pictured above, at left, with Aurora and UMG’s Grainge), who used the opening presented by industry consolidation to launch his very successful start-up in 2007, adds, “Each time this happens, it creates opportunities for young indie entrepreneurs. It’s happened in the radio, concert, festival, retail, and management businesses and each time a new upstart steals the thunder with something different and new. We relish the challenges.”

Veteran record industry executive Phil Quartararo, who has witnessed the phenomenon first-hand during his years at Virgin, Warner Bros. and EMI, concurs. “Consolidation in music is cyclical,” he says. “The business is always more entrepreneurial and more adventurous when the cycle turns away from the big monoliths and is more receptive to music being started outside the system.”

As far as superstar artists are concerned, longtime music industry attorney Dina LaPolt (Britney Spears, Fifth Harmony) posits that the downside of consolidation is that it adversely affects both the talent and executives, with less competition lowering value across the board.  “The only reason to sign to a major record label these days is marketing and promotion,” she says.  “And that’s something you need more people for, not fewer.”

Only time will tell what the benefits and consequences will be once Disney and Fox combine their mighty assets into a global juggernaut in the new on-demand universe.

More Biz

  • Woodstock co-producer and co-founder, Michael Lang,

    Woodstock 50 Organizers Are Optimistic but Vague Before Town Meeting

    Woodstock organizers Michael Lang and Richard Peck were optimistic but vague when speaking with reporters at a hastily announced open house for the festival held in Vernon, New York on Monday night. The town’s Vernon Downs is the most recent proposed site for the trouble festival, which has been dogged by financial and organizational problems [...]

  • What Is Equity, Roc Nation’s Indie

    What Is Equity, Roc Nation’s Indie Distribution Company?

    When news broke earlier this year that Jaz-O, Jay-Z’s longtime friend-turned-foe-turned-friend-again from Marcy Projects, had signed with Roc Nation, most reports glossed over exactly which company the rapper had signed with. His deal, for his Kingz Kounty Media Group, is actually with Equity Distribution, the independent distribution arm of the Roc Nation family of companies, [...]

  • Andhadhun

    Booming Digital Lifts Eros Indian Film Distribution Giant

    Eros International, India’s largest and most controversial film distributor, says that its digital revenues now outstrip conventional theatrical and syndication revenues. Its Eros Now streaming platform claims 18.8 million paying subscribers. The New York-listed company reported annual results that were distorted by multiple adjustments to presentation. Reported revenues in the year to end of March [...]

  • The dark Manhatten skyline, seen from

    StubHub Refunds $500,000 to Customers Shut Out by New York Blackout

    Saturday’s blackout in New York had an outsized effect on the city’s nightlife, with Madison Square Garden and the entire Broadway district seeing multiple shows cancelled due to the the power outage. As a result, StubHub has refunded more than $500,000 worth of tickets for cancelled events. According to a statement from the company, the StubHub [...]

  • Weapons Cache

    D.A. Files 64 Charges in Bel-Air Weapons Stockpile Case

    The L.A. County District Attorney’s office has filed 64 counts against Girard Saenz, the man who allegedly kept a stockpile of more than 1,000 weapons at a Bel-Air home linked to the Getty family. Saenz is accused of illegal possession of assault weapons, transferring handguns without a dealer license, possession of short-barreled shotguns, and possession [...]

  • 9-1-1: Angela Bassett in the series

    Fox Sees Primetime, Sports Ad Gains As TV Upfront Wraps

    Fox Corporation is the latest to benefit from stronger-than-expected trends in TV ad spending, as the company notched strong gains in advertising commitments for its next cycle of programming – its first since selling off a large chunk of its media assets to Walt Disney. Ad demand was stronger than many executives anticipated, according to [...]

  • BMI Promotes David Levin to Senior

    BMI Promotes David Levin to Senior VP of Licensing

    BMI today announced that David Levin has been promoted to Senior Vice President of Licensing, effective immediately. In his newly expanded role, Levin is responsible for all of BMI’s domestic licensing and revenue generation, encompassing radio, television, digital media, cable, satellite and general licensing.  Levin, who will oversee teams in New York and Nashville, reports [...]

More From Our Brands

Access exclusive content