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"No label can control the supremacy of the modern music fan.”
——Irving Azoff
SENATE JUDICIARY HEARINGS ON UMG-EMI STRIKE SOME SPARKS
Azoff and Bronfman Exchange Quips, While Grainge Keeps His Cool
There were no smoking guns at today’s Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights hearings on Capitol Hill, where Senators Herb Kohl, Michael S. Lee, Amy Klobuchar and Al Franken took turns quizzing an industry panel about the proposed UMG-EMI merger.

UMG’s Lucian Grange, EMI’s Roger Faxon and Live Nation’s Irving Azoff testified on the pro side, while former WMG boss Edgar Bronfman Jr., Beggars Banquet’s Martin Mills and consumer advocate Gigi Sohn held forth in opposition. The politicians, as always, just seemed pleased to be in the same room with people who could get their kids tickets to a One Direction concert.

Chairman Kohl and ranking member Lee began with opening statements, as Kohl basically asked the question whether UMG’s proposed 40% marketshare would prevent the competition from achieving exposure at physical and digital retail. Lee agreed that “mergers play an important role in our economy, and should be allowed if they don’t harm competition.”

Grainge’s opening comments reiterated his own 33-year career in the music business. “I started as a talent scout and I’m a talent scout now,” expressing his desire to “invest in EMI to sign artists and creative talent” and a commitment “to supporting any digital venture where consumers can get music in the format they want on the device they want,” while adding, “the competition in this business is as fierce as I’ve ever seen it… Our mission remains to promote music in as many ways as possible.”

Faxon concentrated mostly on establishing a “solid framework of intellectual property rights,” claiming, “major record labels, if they ever were, are no longer, the gatekeepers,” pointing to “a democraticized music promotion…away from editors and program directors and into the hands of fans, in which creators are rewarded for their contributions.”

Azoff recalled his own upbringing in Danville, IL, “an All-American town with All-American ideals,” insisting “the power today rests with artists and consumers, not record labels.” He also chided Bronfman for “talking about combining Warner and EMI for the better part of a decade…Warner had a chance to outbid Universal and failed to close.” He also insisted UMG’s acquisition of EMI would create one more stable buyer for creative talent.  “This business is about relationships and the confidence that the team you signed with will be with you for the rest of the journey. I see it as not having one less company, but one more choice. Labels don’t control artists. Those days are gone. No label can control the supremacy of the modern music fan.”

Bronfman’s argument against UMG-EMI seemed to center around the pairing using its dominant 40% marketshare (and an alleged 50% tally of the hits) to make them “an arbiter of digital innovation,” with the power to "crush any start-up offering a disruptive technology.”

Mills was most adamant about opposing a UMG-EMI pairing. “The music business is no Garden of Eden where an artist can make it on its own,” he said. “All of the star clients on Front Line needed a label to break through. Even Adele needed Sony’s strength in the U.S.” Mills referred to marketshare as “market power… 2/3 of the indies have their digital rights controlled by majors,” concluding, “Great music will suffer and we will head to a lowest-common-denominator situation in the market where they will exploit their position of control and dominance.”

Gigi Sohn also pointed to UMG’s potential influence over digital music start-ups, using the example of Deezer, a Spotify-like service which has found success in Europe, but can’t get licensed in the U.S., then defending EMI’s “history of innovation,” including the first digital download (a David Bowie track in 1996) and eliminating DRM on its MP3s in 2009.

The Senators then took turns questioning the participants, with Kohl asking, “Why did UMG pay $1.9 billion for EMI?”

Grainge pointed to a commitment to “give artists as many opportunities to get their music to as many consumers and fans as we can.” When asked if he’d use that power to litigate or otherwise try to keep promising digital start-ups from being able to frunction, he insisted, more than once, “We would be insane not to work with as many platforms and retailers as possible.” Responding to a quote from ex-UMG head Doug Morris about how the company would seek equity positions in any digital start-up, Grainge insisted, as much as he respected his predecessor, he didn’t agree with the sentiment. And maybe now that Zach Horowitz, a notorious litigator of new digital services, has moved over to the publishing side, that may well be true in the future.

When Bronfman was asked about UMG’s willingness to pay for EMI, he proceeded to quote All the President’s Men: “Follow the money.  They agreed to that purchase price whether or not they get regulatory approval because it buys them a market-dominant position in an industry where 5% of our products represent 95% of our revenue. Controlling that 5% is very, very valuable indeed.”

As for WMG’s interest in acquiring EMI, Bronfman admitted, “I don’t portray myself as a saint. If Warners had bought EMI, we wouldn’t have achieved this kind of market-dominant position and what comes with it… The sole right to determine which digital services live or die, what and how much they must pay.”

Grainge again insisted: “The thought that we would constrict our artists or our investment in EMI to dissolve the market for digital start-ups would be commercial suicide. We are here to invest in EMI, to create more music, opportunities and platforms so music cn be discovered and sold to legitimate fans.”

Sohn kept insisting a super-label would raise prices for commuters at digital music services, pointing out how iTunes has raised its price on singles from 99 cents to $1.29.

Azoff chimed in by pointing to the growing influence of independent labels, naming Jason Aldean, Calvin Harris and One Direction as three acts nurtured by the system that can compete with the majors. “The fewer labels there are, the more independent options there are for artists,” said Irving. “A vibrant Capitol Records offers yet another option.”

Martin Mills pointed out, before he split for a plane to attend the A2IM awards show in N.Y., that eMusic’s signing with UMG after a contentious negotiation, forced it to raise prices and change the very nature of the service.

With the Senators questioning why the music industry should be immune from the 4-to-3 merger that finally derailed AT&T and T Mobile, Grainge insisted that marketshare in the music industry is “far less relevant than in other business… We don’t have a direct relationship with the consumer. The artists make the market. You’re only as good as the artists you’ve signed, how you’ve delivered them to the market and the demand you’ve created for them.”

Faxon insisted “anti-trust principles and precedents should not apply here. It’s not about marketshare; it’s about whether you can exercise market power, which is now with the consumer.”

Kohl then told Grainge that Bronfman described him as “one of the smartest, toughest, most effective executives around,” and marveled at his ability to sidestep questions by not answering them directly. “That must be part of your smartness and toughness.”

“I would agree with everything you say, Senator,” responded Bronfman, as Kohl didn’t miss a beat to laughs. “So you’re pretty smart and tough yourself.”

Senator Lee responded to Bronfman’s characterization of UMG controlling “50% of hit records,” by wondering, “Should they sign bad artists to be less successful?,” to which Edgar joked, “We’ve all signed bad artists,” before Irving chimed in with, “I don’t manage any bad artists,” only to have Junior dish back, “You just wait for everyone else to fail, then you pick them up.”

Bronfman then defined “market power” as “the ability to determine the outcome of so many different things… Innovation will only survive and thrive in a world where there’s competitive balance.”

Perhaps former SNL comic/writer Franken summed up the proceedings best: “I don’t know what point I was making, but I think I made it.”

That makes one of us.

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