How the Government Stuck It to Music Fans Today

By Jordan Weissmann

The newly approved merger between Universal Music Group and EMI gives one company the power to dictate the future of digital music. 

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(Reuters)

Ever get the feeling you've been cheated

Earlier today, the government's antitrust watchdog, the Federal Trade Commission, greenlighted the merger of two of the big four record labels, Universal Music Group and EMI. Once these two giants are done shacking up together, the combined company will control more than 40 percent of the music market. As far as corporate supergroups go, this one is awful. Like, LouTallica bad.

We're now talking about a company that will single-handedly control the rights to a disproportionate chunk of the world's most popular artists, past and present, without whose catalogs it will be practically impossible to sustain any sort of new, inventive digital music service. The Beatles, Katy Perry, Lady Gaga, Rihanna, Taylor Swift, Marvin Gaye, Nirvana, and The Beastie Boys (among many others) are all on the verge of becoming label mates. And their label is going to be very powerful. Spotify and Grooveshark? Be afraid. Universal-EMI has got your whole world in its hands.  

Here's how Paul Vidich, a one-time Warner music executive who was involved in signing his label up for iTunes, described a post-merger playing field in a lengthy feature by Huffington Post reporters Zach Carter and Jason Cherkis:

"Without a UMG-EMI license, they won't have a business," said Vidich, referring to new digital startups. "Within the new UMG-EMI there will be only a handful of senior executives who make these key licensing decisions. So this small group will become the gatekeepers for music startups that require these licenses. The psychology, pay packages and strategic interests of these executives will have an outsized impact on diversity and innovation in the entire online music industry."
The short statement the FTC released explaining its decision is laughably blithe about these concerns. After helpfully pointing out that all albums aren't the same (thanks guys!), it explains that EMI's catalog has more old artists, while Universal has more new acts. Apparently that means they don't compete with each other, as though Rihanna fans never listen to the Beatles. The commission suggests that letting the two companies combine won't make it any easier for music labels to collude on prices. Which I guess makes sense, since when you own forty percent of the market, hey, there's just not as much need to conspire with your competitors. (Book publishers take note: Don't make backroom deals with each other when you want to take on Amazon. Just merge!)

Finally, there's the bit about digital streaming services. Here's their reasoning in full: 

Commission staff found considerable evidence that each leading interactive streaming service must carry the music of each Major to be competitive. Because each Major currently controls recorded music necessary for these streaming services, the music is more complementary than substitutable in this context, leading to limited direct competition between Universal and EMI. In the end, insufficient evidence existed showing that Universal and EMI offer products that could be viewed by streaming services as direct substitutes.

So apparently, because each of the major labels already had such an upper hand over the budding streaming services, letting two of them combine their heft won't really hurt anyone. Which, is, as Mr. Vidich's quote up above suggested, a pretty flimsy rationale. With four major labels, music startups could at least try to play one off the other, with the hope that the pressure to promote artists will encourage them to strike deals. Now UMG has the power to smother these services in their cradle. 

As cartoon Gene Simmons would say: That. Does. Not. Rock. 

This article available online at:

http://www.theatlantic.com/business/archive/2012/09/how-the-government-stuck-it-to-music-fans-today/262696/