Peter Kafka

Recent Posts by Peter Kafka

Before Universal Bulks Up With EMI, It’s Going to Have to Play Small

What’s the future of EMI? The much-battered music company is supposed to be split in two, with a Sony-led coalition buying its publishing business for $2.2 billion and Universal Music Group buying the recorded music unit for $1.9 billion.

But not so fast. Before we can get there, we need to review some history, then engage in some speculation.

First, the past: Way, way back in 2000, EMI was supposed to merge with Warner Music Group. But the deal, which would have created a company that controlled 25 percent of the world’s music market, didn’t fly with European regulators.

And since Universal is the world’s biggest music label, and the new combination will create a company with about 40 percent of the world’s music market, you’d think antitrust types would have a problem with this one, too. (Maybe even in the U.S., which has usually let most industries consolidate, but recently perked up when it came to AT&T’s proposed T-Mobile deal.)

Bear in mind that back in 2000, there were five major music labels. Since then Sony swallowed up BMG, so we’re down to four. And Universal wants to shrink it down to three.

Universal’s answer, of course, will be that today’s music business looks nothing like it did 11 years ago when Britney Spears was selling millions of CDs, Napster was a novelty, and Apple’s iTunes store didn’t exist. Most important: Back then, music sales were a $37 billion business. By the end of last year, that number was down to $16 billion.

But simply arguing that the pie is smaller won’t convince regulators. If Universal is really going to get this deal done, it’s almost certainly going to sell off some pieces, particularly in markets like Germany and France, where a combined EMI/UMG could end up with something like 80 percent of the music market.

I think it will also work very hard to convince people that even the world’s biggest music label doesn’t have any power when it comes to Apple, which controls the world’s digital music market.

That part won’t be that hard, because it’s at least partly true. But it will still be interesting to see Universal, which has longstanding ties to Apple, go out of its way to publicly complain about the relationship, without actually straining it for real.

And in any case we’re going to have quite some time to watch this one develop. EMI CEO Roger Faxon told his staff yesterday that approvals, etc., for the split-up could go “well past” March 31, 2012, when EMI’s fiscal year ends. Music industry folks assume that a realistic timetable would be closer to 12 months from now.

[Image via Jason Mrachina]

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