The chairman and ranking member of the Senate Judiciary Antitrust Subcommittee on Friday urged the Federal Trade Commission to take a hard look at the proposed $1.9 billion merger of music giants Universal and EMI.
It’s the first time Sen. Herb Kohl, D-Wis., and Sen. Mike Lee, R-Utah, have cosigned a letter cautioning the FTC about the anticompetitive implications of a merger under review.
In a letter to FTC Chairman Jonathan Leibowitz, Kohl and Lee outlined “significant competition issues that merit careful FTC review,” including the access to music by online distributors, control over retail pricing, and the ability of independent recording labels to survive in an increasingly concentrated environment.
The subcommittee has no formal authority over mergers, but in late June it summoned Universal Music Group CEO Lucien Grange and EMI head Roger Faxon, who appeared before the subcommittee alongside critics of their proposed merger.
There was significant disagreement among panelists about how much of the market for recorded music a combined Universal-EMI would control, and the extent to which this new market power would give the company control over pricing in physical stores, and control over the future of upstart digital distribution and streaming platforms that want to compete with iTunes, Spotify, Amazon, and others. The subcommittee chairman and ranking member opted to send a joint letter, said Emily Bennion, Lee’s press secretary, because the disputed factual record meant neither office could reach its own legal conclusion about the deal.
The letter details the areas of dispute without taking sides, but significantly it puts the U.S. market share by revenue for the combined company at 40 percent, which would transform the U.S. recorded-music market from "moderately concentrated" to "highly concentrated," according to an analysis from the American Antitrust Institute that was included in the record of the hearing.
The European Union has its own problems with the deal, and is negotiating the divestiture of some of the Universal catalog as a condition of approval, with music by Radiohead, the Kinks, Pink Floyd, and other artists on the block. A music-industry executive close to the deal speculated that the FTC might be looking for European antitrust regulators to do their work for them.
At the same time, the unusual terms of the deal require Universal to pay EMI owner Citigroup almost the full purchase price whether or not the acquisition is approved. This appears to give regulators on both sides of the Atlantic enormous leverage in seeking concessions. The EU and the FTC are expected to conclude their reviews of the process in early September—right around the time Universal is due to pay Citigroup $1.7 billion.
Universal still expects the deal to go through, a spokesman said in an e-mailed statement. “We appreciate the points raised in the joint letter from Chairman Kohl and ranking member Lee, as well as the committee’s recognition of the historic changes in the music industry over the past decade. Since this deal was announced, we have worked closely with the Federal Trade Commission to address many of these issues, and will continue to do so."