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Universal Music uses star power for merger hearing

WASHINGTON (Reuters) - Universal Music Group is trotting out a roster of big-name allies as it makes its case on Thursday before U.S. lawmakers for its much-criticized deal to buy a chunk of rival EMI.
/ Source: Reuters

WASHINGTON (Reuters) - Universal Music Group is trotting out a roster of big-name allies as it makes its case on Thursday before U.S. lawmakers for its much-criticized deal to buy a chunk of rival EMI.

Irving Azoff, the head of Live Nation Entertainment, which faced its own regulatory rough ride in its controversial merger with Ticketmaster in 2010, plans to tell a congressional hearing that increased competition in digital music will make the mega-music merger less concerning.

"With services like iTunes, CD Baby, Top Spin, Reverb Nation, Pro Tools, Facebook, Spotify - you name it - artists can do everything themselves very professionally," he said in written testimony prepared for a hearing Thursday afternoon before the Senate Judiciary Committee's antitrust subcommittee.

Universal, owned by Paris-based Vivendi, is also using its in-house star power to woo lawmakers.

In advance of the hearing, singer Mary J. Blige wrote a letter to subcommittee chairman Herb Kohl to urge support for the transaction, saying "they will lead EMI brilliantly and empower EMI artists."

Lawmakers do not have any formal bearing on the Federal Trade Commission's review of the deal, but they do have the ability to shape public opinion.

Universal, with stars like U2 and Rihanna on its roster, said in November that it would buy EMI's recorded music catalog from Citigroup for $1.9 billion. Sony Corp is buying the other portion, EMI music publishing.

Critics have argued the Universal merger would create a music behemoth capable of controlling the future of digital media by withholding content from digital music startups.

But regulators must also weigh the counterargument - that the major recording companies are weakened giants worn down by the forces of big retailers and piracy that put downward pressure on the price of CDs and digital downloads.

Azoff, who led Ticketmaster since 2008 and is now executive chairman of Live Nation, pushed that argument in his testimony. He also said EMI's extended and very public financial difficulties had made it difficult for the company to sign new acts.

Live Nation and Universal have a management partnership, which was announced last September. The venture is aimed at marketing musicians by strengthening their web sites to allow fans to buy tickets and music through links on the sites.

Universal Music Group Chairman and Chief Executive Lucian Grainge pledged in his prepared testimony that his company would support EMI as a "distinct business."

He reiterated his argument that piracy had curtailed sales, cutting revenues for the recording industry from about $13 billion in 2002 to $6.5 billion last year.

He also said that concern that Universal would hamstring digital startups by demanding high fees was misplaced, noting that the company has 123 active U.S. digital music deals.

Universal is the biggest music company at 30 percent of the U.S. market, Sony is second at about 29 percent, Warner third at 19 percent and EMI at 10 percent, according to 2011 data from Nielsen SoundScan.


Lawmakers will also hear later on Thursday from opponents of the deal, including Warner Music Group director Edgar Bronfman.

Bronfman in his prepared testimony argued that record companies, and the marketing prowess they possess, were still key to musicians' success and that Universal has overstated the poor health of the music business.

He acknowledged that the business was smaller than in 2002, but noted that sales of digital singles were growing and music subscription services were also rising.

"After more than a decade of declining sales, rampant piracy and the transition to a digital world, the industry has turned a corner," Bronfman said.

The American Antitrust Institute, in a letter to the subcommittee, said taking EMI out of the picture would reduce the number of companies in the industry from four to three, making it highly concentrated.

This could well slow innovation and leave the market vulnerable to price manipulation, the group said.

"If there is a likelihood that Sony and Warner would perceive they are unlikely to take market share from Universal/EMI, the three firms are more likely to consciously act in parallel in making pricing and other strategic decisions, such as which platforms should receive music licenses and on what terms," the group said.

Other witnesses expected at the hearing are EMI Group Chief Executive Officer Roger Faxon and deal critics Beggars Group Chairman Martin Mills and Gigi Sohn, president of the public advocacy group Public Knowledge.

(Reporting by Diane Bartz; Editing by Tim Dobbyn)