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Universal Music uses star power for merger hearing

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

Irving Azoff, the executive chairman of Live Nation Entertainment, which faced its own regulatory rough ride in its controversial merger with Ticketmaster in 2010, told a congressional hearing that increased competition in digital music will make the mega-music merger less worrisome.

"With services like iTunes, CD Baby, Top Spin, Reverb Nation, Pro Tools, Facebook, Spotify - you name it - artists can do everything themselves on their own very professionally," he told the Senate Judiciary Committee's antitrust subcommittee.

Live Nation and Universal have a partnership to promote musicians and ticket sales.

Universal, owned by Paris-based Vivendi SA, also used its in-house star power to woo lawmakers, getting multiple artists including Mary J. Blige and Peter Frampton to write letters urging support for the transaction.

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.

The companies have argued that they are weakened giants worn down by the forces of big retailers and piracy which have pressured the price of CDs and digital downloads. Industry revenue fell from about $13 billion in 2002 to $6.5 billion last year.

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.

Universal Music Group Chairman and Chief Executive Lucian Grainge fielded a series of questions from Sen. Al Franken and others about Universal's seeming reluctance to license its massive catalog to digital services - or doing so only if it receives an ownership stake in the startup.

Grainge noted that the company had made more than 100 digital deals, saying it would be "insane" not to license music in as many places as possible.

"It is just not feasible that we would do anything else. We have a duty to the people we sign. We have to sell," he said. "Digital is our future."

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.


Warner Music Group director Edgar Bronfman, who had wanted to buy the EMI unit before the Universal deal was struck, 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.

The American Antitrust Institute, in a letter to the subcommittee, said removing EMI from the picture would reduce the number of companies in the industry to three from four, 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.

(Reporting by Diane Bartz; Editing by Tim Dobbyn and Matthew Lewis)