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By Richard Menta 5/7/06 EMI was rebuked last week when the board of Warners Music voted unanimously to reject EMI's $4.2 billion offer for the company. The word is London-based EMI is going to try again in an effort that, if successful, will turn the Big Four music companies into the Big Three. If that happens there will no longer be a major American record company as the three remaining record conglomerates are all foreign entities. Yup, the Record Industry Association of America will be soley controlled by foreign nationals. If you suspect a bit of jingoism coming from me, it comes from the fact that the US Justice Department and many of our own Senators and Congressmen support jailing thousands of Americans for file sharing to satiate the record cartel. |
As an MBA I am hardly naive to the workings of global economics, but no less that the Department of Justice has labeled these companies a cartel, and dropping from four to three major labels will only worsen the existing oligopoly. I doubt the US will try to stop the sale either, even with the record labels long history of collusion and payola.
But what if an American company bought Warners?
Here is a better question. What if that company were Apple?
As you know Apple recently won a battle to keep iTunes prices at $0.99 - a price that is too high in my opinion - despite pressure from the big labels to raise those prices to as high as $2.50 for recent releases. Another price collusion suit, this time from the NY District Attorney Elliott Spitzer, caused the record companies to back down. Still, the grapevine says that the new deal is filled with backend agreements that will boost the price in the future.
Considering that the revenue the record companies receive from iTunes is mostly pure profit - 98% of the music on iTunes was created before iTunes even existed, so all production and marketing costs were long attributed to the original CD release - you would think the cartels would be happy with the growing revenue generated through iTunes sales. Nahhh, they think they can force you to pay more and so they will. In the long run, Apple does not have as much control as it would like.
But if Apple BOUGHT one of the major labels they would have control. In fact, they would have a lot of it. This includes control of the RIAA who would now have to answer partly to them.
Apple would have the power to price Warners digital downloads to what they see is most fit. In my opinion that would be $0.25 a track for contemporary music and a dime a track for all music prior to 1980. In the end, growth and higher profits would come not through cartel imposed scarcity, but through volume and mass consumerism. No one consumes in volume more than Americans.
Of course, it would be better if Apple purchased EMI instead of Warners. Why? Because EMI is the parent of Capitol Records, owner of much of the Beatles catalog.
Not long ago I wondered what if one of the satellite radio companies bought Sony BMG? They could be candidates here too, though their finances are increasingly unsteady. But, satellite radio works strongly within genres, with many of their stations focused on non-contemporary music. In a brutal bit of capitalism, satellite radio could buy a major record label primarily for their legacy music, then finance it by firing everybody not involved with distribution, sell all of the old record label's buildings, and farm out the contracts of contemporary artists who need any form of nurturing.
If that sounds particularly nasty it reflects the fact that sometimes the value of the parts is greater than the value of the whole. Acquiring companies sometimes just want to crack an acquisition wide open like an egg for the contents it needs and then discard the rest. In these days of poison pills and heavier board of director oversight such a maneuver is harder, but not impossible. The ability to control decades of legacy music, as much as one fourth of it, is the lure for satellite radio...or Apple.
But, will any of this happen? It theoretically could as these types of business dealings happen all the time. Frankly if the fire gets too hot for Apple or the satellite radio companies, becoming a record company is a viable plan to acquire the very content they need for their survival. It creates a verticle market where these entities become part of the production and not just distibituion. The question is, do these companies want to be in the music creation business?
The answer is that the big prize here is the legacy music that presently fills Apple's, XM's and Sirrius' track menus as there is no risk. They can farm out the development of new artists to several independents - no use feeding it back to the remaining big three labels - and avoid the risks brought by developing and marketing new artists.
Aren't "What if" games fun and interesting? Just remember it is not always a game, but a prognostication tool. Still prognostication is nothing more than speculation. If we could count on it we would spend our days at the track
Other MP3 stories:
Fans Who Share Music
Aren't Thieves
Interview with
BBC News Head On DRM, File Sharing and the Press
