Op Ed: Universal/EMI – Bob Lefsetz

I think I'm switching sides. I think I'm against this merger.


On one hand I've been very influenced by Peter Paterno, who's convinced me market forces always triumph, that the government does not need to get involved. Hell, look at Microsoft… It squandered its dominance all by itself. As for Live Nation and Ticketmaster… There are more ticketing companies than ever before, Live Nation missed the EDM boat… One can argue strongly that Universal should just swallow EMI whole and let it be it.


But there's a problem. Especially in the U.S. You see in this country, copyrights are forever. Theoretically they expire, but whenever that's close to happening some fat cat leans upon his congressperson and the term is extended. Yup, Mickey Mouse should be in the public domain, you should be able to paint his picture on pre-school walls and sell t-shirts with his visage… But Michael Eisner and Disney just couldn't let that happen.


Even patents expire. Relatively quickly. That's why the generic drug industry is burgeoning. But musical copyrights? They just go on and on, and he who controls them has power, he can gum up the works.


Imagine if there was no copyright in music. Napster would still exist. Then again, it might already have been eclipsed by streaming services. But Napster died. Because it needed permission. Something the rights holders just would not grant.


You see I'm less worried about the forty percent of the new music marketplace Universal would own with its acquisition of EMI than its catalog. New music market share comes and goes. The barrier to entry is not incredibly high. But they're making no more Beatles records. If this merger goes through, Universal would own them and the hits of the Beach Boys, never mind the tracks it already controls. And if you want to go into any business requiring usage of copyrighted material, you're gonna have go through them, Universal…your company will be dependent upon their whims.


Which is why for so many years we got no new developments in legal online music distribution. The rights holders just wouldn't license. And they extracted ownership in Spotify in order to grant said license and as a result, we've got no idea how much they're getting paid or what artists are entitled to. It's a closed system. And it sucks.


Think about the Telecommunications Act of 1996, which enabled radio consolidation. It ruined music radio. There's not a listener who would not agree. And by tightening radio playlists, it negatively impacted music at large, it was hard to sell it if you couldn't hear it.


Of course now there's the Internet.


But the Internet was nascent in 1996. And that was over fifteen years ago. Terrestrial radio is still the best way to expose music, to everyone but the major labels' detriment.


The problem is, there's a limited number of stations. Just like there's a limited number of copyrights. He who owns the past unfortunately ends up controlling the future, for a very long time anyway.


Eventually so much of the classic rock era will be financially irrelevant. Just like you don't need the music of the 1940's to launch a service today. But that's going to be a very long time from now…


But let's say the merger doesn't happen. What's end game then?


I believe the major labels will lose their grip on new music production. Then again, he who controls distribution holds the trump card. But what I'm saying is what is end game if this merger is not allowed to go through? Are we gumming up the works by preventing inevitable consolidation? Does the company that buys EMI end up with an orphan entity down the road that is only worthwhile if merged with another?


That's an interesting question.


But anyone who doubts the power of Universal, the big kahuna, already, should read the story of eMusic in today's "Wall Street Journal". Unfortunately, it's behind a paywall, so I'll quote the relevant provision:


"In some cases, Universal has already used its market power to extract favorable terms from online music services. In early 2008, David Pakman, then the CEO of eMusic.com Inc, was negotiating to add major-label releases to his company's catalog of independent music. David Ring, a senior digital executive at Universal Music, told him Universal's massive catalog entitled it to more favorable terms.


'He said, "We get more, because we're Universal. That's just the way we roll,"' Mr. Pakman recalls. That stance, Mr. Pakman adds, applied to 'every dimension of our contract: the rate you pay per unit sold; the promotion you agree to do.' The companies reached an agreement 2? years later, after Mr. Pakman had left and eMusic raised its prices sharply.


A Universal spokesman called Mr. Pakman's account of the conversation 'complete fiction.' In the same email, the spokesman wrote: 'UMG has licensed more digital music services than any other music company.'"


http://on.wsj.com/PnA3nM


Who do you believe? Hell, Universal's denial was not even complete. It sidestepped the issue… And we hear from the spokesman, not Mr. Ring himself?


Mm… My mind is not completely made up.


But I'm afraid, very afraid. Because he who controls the lion's share of copyrights has undue influence on the future of music. Not only in distribution. This is not tech, where Palm is trumped by RIM, which is trumped by Apple and Android. all within a decade. Those rights Universal holds last, like I said, essentially forever.

The Senate Judiciary Hearing


Be afraid, be very afraid. Especially when Lucian Grainge makes Edgar Bronfman, Jr. look like a paragon of openness and reasonableness.


If you were watching this hearing, and you knew nothing about the law, were just deciding whether the Universal/EMI merger should go through on fairness, you'd say NO WAY!


Lucian Grainge was so evasive and duplicitous you'd be afraid to go to dinner with him for fear he'd steal your watch. It was so obvious that both the panel and the chairman/senator had to remark upon it, that he didn't answer a single damn question.


Roger Faxon was eloquent. But it was hard to figure out exactly whose side he was on. What I mean by that is isn't he up for a job at Warner? And isn't this sale from Citi to Universal guaranteed? And he said if the merger goes through he's gonna lose his job, but admitted with a send-off paycheck, ain't that the American way.


At least Irving Azoff was honest. He said that Warner was blocking this merger because they didn't want to overpay for EMI, but they still wanted to own it. Truth is always refreshing. Irving was the only one who really talked about the new music business. Still, the concept that recorded music income is going to drop off a cliff and be nonexistent in the future is just plain wrong. The majors may not control the music of all of his acts, but they can determine on which terms they engage with the public in the marketplace.


Martin Mills made you want to sign to his company. He wasn't sleazy, he was direct, and forceful.


As for Gigi Sohn… She didn't look the part, but she was the musicians' friend.


And the inquisitors were quite informed. Star of the panel was Al Franken, who even corrected Azoff, putting in the record that Universal was not first on Spotify, but third, after EMI and Sony. Franken had done his homework. He cornered Grainge. But like the weasel Lucian is, he refused to respond to the inquiry, again and again and again. Hell, Grainge wouldn't even answer Kohl's question as to why he bought EMI. Can you imagine that, someone spending $1.9 billion and not being able to articulate why?


This hearing is meaningless.


But the proposed merger is not.


Just today I got this e-mail:


"I need you to withhold publication of my name because I still rely on UMG for some licenses. However, I can personally vouch for the validity of Pakman's statement to the WSJ. David Ring and his jr lawyer, Aaron Harrison, pulled the same kind of shit on me when I had to cut new licenses for _______ to save the company from extinction. Word for word.


The problem is that the industry is already too concentrated. The only fair solution is to exchange extended copyright protection for mandatory statutory licensing of all known digital business models including downloads and on-demand services."


Meanwhile, you all know the name of the company this gentleman is speaking of.


You see these guys are assholes. Especially Lucian Grainge. They're bullies who want to succeed not so much for their artists, but for themselves. It's the American way.


As for the public.


SCREW YOU!


P.S. Bronfman made an excellent point, that the AT&T merger with T-Mobile was denied, even though the resulting entity would have equal or less market share than Universal/EMI.


P.P.S. Even indies need distribution. Did you see that Amanda Palmer made a deal with Cooking Vinyl today? (http://bit.ly/L7vVUE)


P.P.P.S. Cooking Vinyl does not own a piece of Spotify, MOG or Vevo. But Universal does. In other words, you can be independent but every time your music is streamed you're enriching your competitor. It's kind of like paying the Mafia to keep your restaurant open.

P.P.P.S. Irving screwed up. He talked about the major labels exercising "blocking rights"… Isn't this what this hearing is all about, the concept of blocking unapproved entrants into the marketplace, whether they be music services or acts, requiring them to play by majors' rules, if they allow them to play at all?

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