November 11, 2011

Universal and Sony Buy EMI

The big four of the music industry (Warner Music Group, Universal Music Group, EMI Group Ltd., and Sony Music Entertainment) are now down to the big three.

Universal and Sony announced their $4.1 billion buyout of EMI late Friday. UMG gets the recording division while Sony has dibs on the publishing — including the Beatles catalog, which went to iTunes earlier this year.

EMI was bought out earlier this year by Citigroup after the bank's seizure of private equity firm Terra Firma (which bought EMI in 2007). Besides changing hands multiple times, EMI also comes with a handful of children: Virgin Records, Blue Note, Parlophone, and the staple Capitol Records brand.

Universal has yet to comment on the merger and EMI refuses to do so.

There may be issues raised about the concentration of power that the merger creates. Sony's acquisition of EMI's back catalog is the major aspect that may come under regulatory scrutiny in the U.S., since the U.S. market share of EMI's recording division is not large enought to cause problems for Universal. On the other hand, IMPALA, the European Association of Independent Music Publishers, expects the sale to Universal to be blocked in the European Union on the grounds that it creates a near-monopoly, even with the 500 million euros of divestitures Universal has proposed to make. See the organization's press release here.

IMPALA notes that most recording companies are small and midsized and they produce 80 percent of the new recordings each year. With its enlarged market share, they say, Universal could potentially harm competition and innovation, restricting access to markets and making its own de facto rules in the all-important arena of digital access and digital rights management. Such monopoly concerns were addressed by the EU Commission's Board of Trade when, a few years ago, Universal acquired BMG. At that time, the Commission dealt with the problems raised by the sale by requiring divestments from Universal. Already, European labels 4AD and Metador, joined by others, have lodged a complaint in Brussels.

But in another sense, the merger underscores how just getting bigger may not be a key to success in this field. Universal itself has faced challenges in an increasingly mobile and diverse marketplace. It's trying to expand its way out of trouble, but history shows that is no guarantee of success.