Hearing of the Antitrust, Competition Policy and Consumer Rights Subcommittee of the Senate Judiciary Committee - The Universal Music Group-EMI Merger and the Future of Online Music

Statement

By:  Herb Kohl
Date: June 21, 2012
Location: Washington, DC

In recent years, the music industry has undergone a radical transformation as consumers embrace new digital music technologies, a transformation as revolutionary today as the gramophone, radio, and recorded music were a century ago. The deal before us today is just one example of this transformation. EMI is being sold in two parts -- to Universal and to Sony -- so that there will only be three major record companies remaining. Today we meet to consider the sale of EMI's recorded music business to Universal, and its impact on competition, artists, and consumers.

As recently as 20 years ago, virtually all consumers obtained their music by going to their local record stores to buy records or CDs, often after hearing the music on the radio. Today the market is very different. About half of all music revenue comes from digital sales over the Internet, from downloading songs and albums via i-Tunes or listening to an online music subscription service such as Spotify, to give just two examples. Recording artists can reach consumers directly over the Internet without ever signing a deal with a record company. Most record stores have closed as a result of the new online services. For those consumers who still buy physical CDs, they do so primarily at large chains such as Wal-Mart or Target, or by ordering over the Internet on a website like Amazon. And the music industry faces ongoing challenges from illegal downloading of music over the Internet.

In this brave new world for the music industry, Universal and EMI argue that this deal should not concern us. They contend that the market shares resulting from the merger should not concern us and that the power to set prices is in the hands of the online distributors or the large chain retailers with whom they must deal. And the ongoing problem of piracy, they argue, effectively constrains their ability to raise prices when consumers can easily get music for free via illegal downloads.

Nonetheless, we must closely examine whether reducing the number of major record companies to three -- and giving Universal as much as 40% of the music business by some measures -- will adversely affect competition. Concerns are especially strong with respect to the market for online distribution. Will Universal's music catalogue be so large as to make it a gatekeeper that can make or break any new online service, and allow it to prevent new competitively priced services from launching?

And we must carefully scrutinize what this merger will mean for consumers who buy music on physical CDs -- still half of all music sales revenue. In almost all industries, reducing the number of competitors from four to three expands the market power of the remaining companies and increases the risk of higher prices. Why shouldn't these same principles apply to the music business? Moreover, will the three remaining record companies be able to obtain the lion's share of floor space and promotions in retail stores, thereby crowding out their smaller competitors?

We must be particularly mindful of the possible harmful effects on independent labels and artists. As in so many creative industries, innovation and new forms of music often comes from those artists not signed to major record companies. We must be careful to ensure that this consolidation does not impede the ability of independent record labels to compete, or place undue barriers to the emergence of new innovative and diverse talent in the music industry.

So our examination of this transaction leaves us with more questions than answers as we begin today's hearing. While we recognize that the music industry has gone through enormous changes and challenges in recent years, we are mindful of the basic principles of antitrust and the need to maintain competition in this industry, both for consumers and artists.