- Act Now
- Open Internet
- Promoting Creativity
- Open & Accessible Technology
Today the U.S. Federal Trade Commission approved a proposed merger between the publishing divisions of Sony/ATV and EMI Music Publishing. Although the FTC did not release an analysis of the deal, yesterday the European Union released the analysis it relied upon when approving the publishing merger with several divestitures. The proposed merger between the Universal Music Group (UMG) and EMI record labels is still under consideration in both the U.S. and Europe, but a closer look at the EU's analysis of the Sony/EMI publishing merger only bolsters the case against the UMG/EMI merger.
Although the EU's analysis is focused on music publishing, it addresses some of the same arguments that have been used to try to justify the UMG/EMI merger. The EU's rejection of these arguments shed light on how those same assertions may be received in the record label context.
The EU explicitly rejected Sony and EMI's argument that online piracy puts pressure on the merged entity to be competitive and embrace online music distribution. Universal has made the same argument to justify why it should be trusted to control 40% of the market without using its leverage to hurt competition and consumers.
It's reassuring to see the EU recognize that piracy is nowhere near the competitive threat that the dominant companies say it is. The EU even noted that the companies' piracy argument is disproven just by looking at the market today: if piracy was pressuring them as much as they claim, they wouldn't be able to negotiate fees that are so much higher than what independent receive.
The EU also recognized the outsize bargaining power that dominant companies with large copyright catalogs have over new online distribution platforms. When those platforms have to negotiate with companies that control the rights to so much music, reasoned the EU, online services will either (1) pass on costs to consumers, (2) restrict their services to the detriment of consumers, (3) accept lower profit margins, resulting in fewer sustainable online services, and/or (4) force lower returns for smaller, competing publishers.
This threat is just as real in the record label space. As Public Knowledge President Gigi Sohn testified last week before the Senate Antitrust Subcommittee, a combined UMG/EMI would have the maket power to demand onerous terms and fees from new services, which must ultimately squeeze out new distribution services, independent labels, or both.
Finally, the EU rejected the argument that popular online music services have enough buying power to balance out the market power of larger corporate copyright owners. The EU explained that the online music business is very dynamic, and it's very easy to switch between services or try new ones. As a result, even the most successful services like iTunes, Amazon, and Spotify don't have the leverage to counter the combined company's anticompetitive incentives.
This is why the EU ultimately decided that it could only approve the Sony/EMI publishing merger if the merged company sold off substantial portions of its publishing catalog.
But for the proposed merger between the UMG and EMI record labels, the deal threatens even graver harm against competition and consumers in the music marketplace. That is why the U.S. and EU antitrust authorities must block the deal and preserve competition in the recorded music business.