The Merger Music Fans and the Government Should Fear

The world's biggest record label wants to get even bigger. Here's why the government should say no. 

Pop star Katy Perry is one of the artists Universal would acquire in its bid to purchase EMI (Reuters)

Even by the standards of major corporations, big record labels have never been the most sympathetic of creatures, prone as they are to suing fans and squabbling with their own artists. But Universal Music Group is hoping that by singing a little blues, it can convince U.S. regulators to approve a $1.9 billion deal that would give it control over more than 40 percent of the recording industry.

The company is seeking to buy up the large remaining hunk of EMI, the most troubled of the big four labels that dominate the music business. The sale would give Universal, whose roster reads like a rundown of the Billboard Hot 100, an immense back catalog that includes artists such as The Beatles and Pink Floyd, as well as hit makers like Coldplay and Katy Perry. The Federal Trade Commission would ordinarily be hesitant to bless that kind of a corporate marriage, due to the obvious antitrust concerns. But Reuters reports that the agency is at least considering the notion that the deal could be kosher because "the major recording companies already 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."

B.B. King would be proud (he also happens to be a Universal artist). And perhaps it's true. Perhaps file sharing, iTunes, and Walmart have laid them pitifully low. As Reuters notes, annual revenues at U.S. labels have fallen by half since 2000, to about $7 billion.

But it's irrelevant. If the federal government wants to maintain any sort of meaningful consistency in its antitrust policy, it can't possibly let this deal go through.

Consider the last big antitrust story to hit the media world. A little more than a month ago, the Justice Department filed its price-fixing case against Apple and five major publishing houses for conspiring to raise the cost of eBooks. The publishers allegedly banded together and, with Apple's assistance, used their collective heft to force Amazon into letting them dictate the price of digital titles. Combined, the five publishers controlled -- wait for it -- around 40 percent of the trade book market, which includes popular fiction and non-fiction.

To be fair, it's not an exact parallel. Price fixing is considered a cut-and-dry example of the behavior our antitrust laws are designed to prevent. It's an illegal use of a company's market muscle. Mergers are different, legally speaking. To extend the metaphor a tiny bit, Universal would simply be bulking up, but not necessarily pushing anyone around.

But the analogy holds true in other respects. Both industries are struggling with the transition to digital and contending with the formidable price-setting power of a single dominant online retailer --  Amazon in books, Apple in music. And while record labels have been trying to fend off piracy ever since Napster, illegal downloading is a growing worry for the book business as well.

A bigger, stronger Universal might vow to behave itself against the competition. But it would still have sway on par with a conspiratorial clique of publishing executives, enough to become a serious impediment to some of the most promising, fan-friendly changes the music industry has seen in recent years. Forget the new leverage it would have haggling with the big retailers who have kept a lid on album prices. Instead, imagine yourself as an executive from an upstart music streaming service, say Spotify or Rdio, and that you are attempting to negotiate terms with this new musical giant. Along with The Beatles, Katy Perry, and Coldplay, they control the rights to Lady Gaga, Rihanna, Taylor Swift, Marvin Gaye, Nirvana, Snoop Dogg, The Beastie Boys, and...well you get the idea.

Now ask yourself: Who's in the driver's seat? And what happens if they choose not to license their songs at all?

The major difference right now between books and music is that while publishers' revenues are increasing, record companies have taken a hit. Again, it shouldn't matter. If the government isn't interested in allowing one branch of legacy media to prop up its endangered profits, it shouldn't be in the business of making exceptions for another.