UMG/EMI: The Next Innovation Bottleneck
UMG/EMI: The Next Innovation Bottleneck
UMG/EMI: The Next Innovation Bottleneck

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    While much attention has focused on whether
    European antitrust regulators will allow the major label Universal to buy one
    of its competitors, EMI, the proposed merger has also attracted the attention
    of US antitrust authorities in the Federal Trade Commission (FTC) and Senate.
    In the US context, this merger bears some important similarities to recent
    proceedings like the Comcast/NBCU merger and the failed AT&T/T-Mobile

    and AT&T/T-Mobile: Taking Over a Maverick Competitor

    Just like AT&T’s attempted takeover of
    T-Mobile, which Public Knowledge opposed and which fell apart after meeting
    opposition from the Department of Justice (DOJ) and Federal Communications Commission
    (FCC), the UMG/EMI merger would bring the number of major competitors in the
    market from 4 to 3, and would result in one company controlling 40% of the
    market. Just as the DOJ and FCC recognized for AT&T/T-Mobile, this kind of
    market share would result in higher prices and fewer choices for

    The UMG/EMI and AT&T/T-Mobile mergers have
    another important aspect in common: both threaten (or threatened) to eliminate
    a maverick competitor that puts unique pressure on the dominant companies by
    experimenting with new consumer-friendly initiatives and pricing models. EMI
    and T-Mobile are both the fourth-largest companies in their respective markets,
    which means they have to be uniquely innovative to compete against their much
    larger competitors.

    Time and time again, EMI has set the bar
    higher for other major labels by taking risks on digital music services that
    ultimately benefitted consumers.

    For example, in 2000, EMI became the first
    major label to license its catalog to the online subscription streaming service
    Streamwaves, and in 2001 EMI became the first label to license to a digital
    music service (PressPlay) without demanding an ownership stake.

    In 2007, EMI became the first major label to
    offer digital downloads through iTunes without digital locks on the files. EMI
    has also been one of the first labels to sign deals with Spotify, Project
    Playlist, and Apple’s iTunes Match. 

    Finally, EMI is the first and only major label
    to dive headfirst into developing digital music services by allowing app
    developers API access to parts of the EMI catalog. The project, called OpenEMI,
    offers a transparent 40/60 profit split to developers and does not require
    developers to pay advance royalties or flat fees. More importantly, OpenEMI
    shows that EMI is envisioning and embracing a new role for record labels: as a
    liaison between developers and recording artists.

    and Comcast/NBCU: “Conditions” Aren’t Perfect

    The proposed Universal/EMI merger also reminds
    us of when Comcast bought NBCU, subject to many conditions designed to stop
    Comcast from using its gatekeeper power to stifle competition in new areas like
    online video. There, the FCC and DOJ recognized that controlling must-have
    content that new online services will want to license gives dominant companies
    the ability to withhold licenses or extract terms that harm unaffiliated
    programming and distribution competitors.

    The story of Comcast/NBCU should also be a
    cautionary tale if antitrust authorities try to prevent a post-merger UMG from
    acting anticompetitively through behavioral conditions. Comcast has been
    accused of violating its merger conditions several times, by companies like
    Bloomberg and Concord and public interest organizations like Public Knowledge.
    The proceedings investigating these complaints are still ongoing at the FCC,
    and can be very expensive for competitors trying to speak out that they are not
    being treated fairly. Similarly, the antitrust authorities must remember that
    allowing UMG to buy EMI subject to behavioral conditions can impose significant
    costs on those bringing complaints and the agencies that must investigate those

    a Bottleneck for New, Innovative Services

    The AT&T/T-Mobile and Comcast/NBCU
    proceedings also bear another striking similarity to UMG/EMI: they all threaten
    a huge impact on companies and services that either don’t yet exist or might
    not speak out against the merger for fear of retaliation. For example, an
    existing digital music service that depends on licenses from major labels to
    survive could very well see how a combined UMG/EMI would have even more
    leverage over it, but might not want to oppose the merger for fear that UMG,
    EMI, or a combined UMG/EMI would retaliate by withholding licenses or demanding
    onerous terms.

    Although digital music services might be
    reluctant to call out UMG by name for fear of retaliation, we can still see the
    likely effects of the merger by observing how digital music services depend on
    licenses now. For example, digital music service just
    recently closed its service, citing licensing problems as a major obstacle to
    maintaining a viable service that lets users choose what music they listen to.
    Similarly, music streaming site Deezer continues to expand into new countries
     (three more just this week), but can’t get sustainable licenses to launch
    in the US.

    Past experience in the AT&T/T-Mobile and
    Comcast/NBCU proceedings shed light on how dangerous the UMG/EMI merger would
    be to consumers and a healthy competitive market for recorded music. This is
    why the antitrust regulators must seriously consider the many consequences of
    handing bottleneck control of 40% of the recorded music market to one incumbent
    firm with a strong incentive to stifle competition.