Wednesday, June 20, 2012


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.

By: Bob Lefsetz

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