Refe Tuma is a writer, thinker and strategist with a passion for the new music industry. Follow Refe on Twitter to join the conversation, with topics ranging from economic theory to social media.
Universal Music Group seeks to merge with EMI to create a super-label monopoly so big that even piracy can't stand in its way. What does this mean for innovative digital music services, and for listeners? (Hint: nothing good.)
I came across a fascinating statement in an article covering the proposed merger between Universal, the word's largest record label, and third largest label EMI:
"No one at Universal wants to go on the record but those close to the company have a clear message ... they argue that Universal-EMI's 40% share and pricing power aren't the real issues when there is rampant piracy, an abundance of free music on the internet, and Apple, Google and Amazon have muscled onto their turf."
In other words, the already dominant Universal believes it needs a monopoly in order to survive the digital economy. At first glance, this seems like quite a leap. How could piracy and free music possible justify the monopolization of the majority of the world's music catalog? I wasn't sitting in the board room that day, but I think I can shed some light on how Universal got from point A to point B:
Inside the Universal Music Group war-room:
Monopolies are not good for free markets. Why? Because they prevent prices from adjusting naturally to changing supply and demand. They prevent market disruption by eliminating competition and creating an environment that is hostile toward entrepreneurship and innovation. That is exactly what Universal wants.
Solving the digital music problem?
According to their logic, piracy and digital file sharing have already destroyed the supply-demand balance. Even though demand for music has remained steady throughout the industry's transition to a primarily digital market, prices have dropped substantially or disappeared all together. Digital distribution allows for infinite copies of an album or track to be produced, and it is impossible for demand to catch up. The market needs a monopoly that has the power to exert control over prices so that digital music can remain a viable product.
Economically speaking, there isn't a straightforward solution to the infinite-supply problem. Generally, when there is excess supply of a product, production would slow or stop. Nobody wants that to happen with music - not musicians, not listeners, and certainly not Universal and the other labels! Only an artificial metering of supply could drive prices back up, assuming that demand remains constant... which happens to be exactly what monopolies are designed to do. Ah, corporate logic.
Of course, even if you buy Universal's reasoning there are big problems with this plan. It would certainly have unintended consequences, and could even backfire entirely by resulting in even more file sharing and piracy of the label's catalog.
Monopoly and innovation
The first thing that a Universal-EMI super-label would probably do is to raise the already steep royalty fees for online music services like Pandora and Spotify. Universal has already set a precedent for this. In 2011 it tried to shut out French streaming site Deezer from using its catalog. The Paris high court decided against Universal, and their ruling is telling:
"The refusal to supply the catalogue, following the refusal to accept the conditions of Universal, which differed from those contained in previous contracts and in contradiction with the commitments made during the agreement of January 2011, constitutes in itself an abuse of a dominant position [...]
"It cannot be contested that Universal's catalogue is most important from both a quantitative and a qualitative perspective, as it contains 50% of the Top 100 titles. It can therefore be considered as an essential and thus indispensable element for the size and coverage of the platform."
If Universal had a dominant position then, imagine the influence they would have after acquiring EMI! This is not good news for streaming services, or any of the other innovative music services out there today. Streaming business models have already proven difficult to sustain under current rates; if those rates increase the Pandoras and Spotifies of the world will find themselves in a very precarious spot.
Pouring gasoline on the fire
This is obviously bad news for listeners, but as I mentioned above it would likely come back to bite Universal and EMI as well. If recent history has taught us anything, it is that if listeners can't find the music they're looking for on legitimate platforms they are more than happy to download it from wherever they can find it.
"Restricting innovation in the digital music space will actually increase the amount of infringement, by (1) making it unprofitable for most companies to be in that space and (2) limiting true innovation and the necessary competition among services that leads to the kind of new innovations that consumers want. Instead, it'll just drive them to go back to what works: open infringement." - Techdirt.
A super-label would not only fail to accomplish its own stated goals, it would be disastrous for the digital music industry as a whole. If recorded music is going to remain a viable product (or re-emerge as one, depending on how you ask) it will take legitimate, innovative solutions. That will be more difficult than ever to accomplish under a monopoly like the one Universal and EMI are proposing.