Saturday, September 22, 2012

Universal domination: US and EU finally pass Universal-EMI acquisition


After many months of negotiations, US Federal Trade Commission and the European Commission of EU finally passed the Universal Music Group $1.9 billion acquisition of EMI on Friday, September 21. The deal is expected to close by the end of next week.

The agreement increases the scope of the already largest music company in the world, but not without sufficient compromise. Regulators made Universal agree to divest one-third of EMI's assets, which includes a large part of Parlophone--EMI's flagship label in Europe--and numerous other labels and subsidiaries. In addition, Universal conceded to divest a number of its own assets and market controls governing its digital music services contracts.

The acquisition faced its fair share of scrutiny from regulatory commissions in various nations, independent labels, consumers, and competition all arguing that it would vest UMG with too much market power. The particular concern was with digital music rights, for which too much control would be at the hands of the one label.

Before the merge, the music industry was dominated by what was known as the "Big 4"companies. Now that Universal will acquire 2/3 of EMI, it will effectively control 36 percent of the world's recorded music market (according to Music & Copyright). This leaves Sony Music Entertainment, the second largest music company, with 21.6 percent share, and Warner Music Group with 15 percent share.

This shift is not unfamiliar for the industry, which had six major companies not two decades ago. As the size of the industry shrank by threat of piracy and a shifting consumption model (recorded music sales fell from $28.6 billion in 1999 to $16.6 billion in 2011, according to International Federation of the Phonographic Industry), companies consolidated--and then there were three.

Despite the considerable concessions, opponents still fear Universal's prospective growth and latent domination by destroying a competitor. Although it has conceded the rights to sell the music of acts like Coldplay, Pink Floyd, David Guetta, and Kylie Minogue, it keeps the right to sell the music of the Beatles and Robbie Williams.

Including the eschewal of certain digital sales privileges, the value of total divestments is speculated to reach about $450 million in annual revenue just in Europe (not considering global revenue). Universal is given six to nine months to complete the sales, which will be run byGoldman Sachs.

Regardless, Universal must have found at least some solace, now that months of uncertainty have finally brought a resolution in their favor. Still, many questions remain unanswered--answers to which the industry and consumers, advocates and proponents await.

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