Flashes of AT&T/T-Mobile in Universal/EMI Merger, Senators Say
Members of the Senate Antitrust Subcommittee said at a hearing Thursday that the proposed merger of Universal Music Group (UMG) and EMI will consolidate the music industry much like the failed AT&T/T-Mobile merger would have done to the wireless telecommunications market. Witnesses testified that the proposed deal would give UMG as much as 40 percent market share of the music business and reduce the number of major music labels from four to three. UMG CEO Lucian Grainge said the music market is both competitive and unique because labels’ relationships with consumers are very different from consumer relationships in the wireless market.
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Subcommittee Chairman Herb Kohl, D-Wis., asked Grainge point blank why the merger should be viewed “in any substantially different way” from the AT&T and T-Mobile merger. Grainge said competition in the music market is “fierce” and that it would be “commercial suicide” for UMG to constrict the label’s artists and constrict the investment they plan to make in EMI: “We have a duty, a responsibility to sell and bring their music to their audience and fans and help them market it.”
"In the ordinary antitrust analysis, reducing competitors from four to three would sound major alarm bells,” said Sen. Richard Blumenthal, D-Conn. “It might even be regarded as a five-alarm fire.” He too asked Grainge what makes the deal different from the AT&T/T-Mobile merger. Grainge said market share in the music industry is “far less relevant” than in other industries. “Telephone analogies and consumer relationships in my opinion are not relevant. We don’t have a direct relationship with the consumer and I think the artists make the market.” Grainge said the question in antitrust is not about market share, “it is about market power.” But Blumenthal did not appear satisfied and said he was concerned that Grainge’s argument “seems to say that antitrust concerns simply should not be applied here because it is a unique or quirky industry.”
Public Knowledge CEO Gigi Sohn said the parallels between the proposed deal and the failed AT&T/T-Mobile merger were “spot on.” If this merger goes through, the top three labels would have 90 percent of the market, the top two would have 70 percent and “you would have this one super label that would be able to pick winners and losers when it comes to distribution of digital services,” she said. “If this entity has basically the ability to decide who lives or dies among digital music services, that will raise prices for consumers and that’s not fair.”
Sen. Al Franken, D-Minn., said he was concerned that if UMG’s market share “swells to approximately 40 percent you will have every incentive to demand more equity, a larger cut of the ad revenues from payments and other owners’ returns … as a condition of turning over your content.”
Ranking Member Mike Lee, R-Utah, acknowledged that the merger would result in “a significant market consolidation” but said “this isn’t the end of the analysis. The merger could still proceed where other competitive factors counteract the potentially harmful effects of increased concentration. … It’s not just a simple matter of just looking into whether or not it will result in increased concentration. I think it’s pretty certain that it will.”