UMG-EMI Merger is a Sour Note for Consumers

FOR IMMEDIATE RELEASE

Contact: Mark Cooper, 301-384-2204

April 26, 2012

UMG-EMI Merger is a Sour Note for Consumers

Dominant Firm Could Raise Prices and Undermine Competition, Consumer Group Warns

Washington D.C. – In a letter sent to the Senate Committee on Antitrust, Competition Policy and Consumer Protection, the House Judiciary Committee and the Federal Trade Commission, the Consumer Federation of America (CFA) joined with Public Knowledge to urge close scrutiny of the proposed merger between Universal Music Group and EMI.  The letter identifies severe problems with the merger in terms of traditional market structure analysis and nascent digital competition.

“Consumers have benefited greatly from the growth of digital distribution of music, but albums are still the marquee product,” Dr. Mark Cooper, CFA’s Director of Research said.  “Access to current and catalogue albums is essential to the success of any new business model.  One company controlling over 40 percent of the marquee content would have the power to undermine alternatives it did not like.”

“If five companies controlling less than 50% of a market are a threat to competition, as the Department of Justice concluded in its complaint against publishers in the e-book market, one company controlling more than 40% certainly is.”

The letter notes that under the recently revised Merger Guidelines, the UMG-EMI “will be presumed to be likely to enhance market power,” because it would create a highly concentrated music album market.  In fact, the increase in concentration in the album market the merger would cause is five times the level that the Guidelines identify as triggering an unacceptable increase in market power.

The letter went on to state that the most compelling reason to give the merger extremely close scrutiny is the potential for development of alternative business models in the transition to digital music distribution coupled with incumbent record labels’ strong interest in diminishing the impact of digital disintermediation on their control of the marketplace. Incumbent major record labels have incentive to stifle new digital distribution platforms because those platforms begin to level the playing field among major labels, independent labels, and unsigned artists.

The letter also rejects the notion that piracy will prevent the abuse of market power, noting that consumers spent over $1 billion on digital albums last year (buying over 100 million at $10 per album).

“An increase of $1 per album would not turn consumers into pirates, but it would fatten the bottom line of the UMG-EMI,” Cooper said. “It is price increases of this magnitude that antitrust authorities are concerned about in merger reviews. This is exactly the kind of threat to competition and consumers that antitrust review of mergers is intended to prevent.”

A copy of the letter can be found at: www.consumerfed.org/pdfs/Letter.CFA.PK.UMG.EMIIL.pdf

The Consumer Federation of America is an association of nearly 300 nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education.