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SXSW and the Future of Digital Music Distribution

March 12, 2013

For those who are journeying down to sunny Austin, Texas for
the kick-off of the SXSW Music festival today, don’t forget to check out Public
Knowledge’s panel
tomorrow,
where we’ll be talking about the effects of market concentration on consumers,
artists, and digital platforms.

The panel, inspired by the recent merger between major
record labels Universal Music Group and EMI, will also include artist advocate
and principal of WYZ Girl Entertainment Lita Rosario, CEO of indie label
association Merlin Charles Caldas, manager and CEO of V. Brown & Company
Vernon Brown, and Paul Geller, co-founder of The BKRY and former SVP of
Grooveshark.

The UMG/EMI merger was a controversial proposal, attracting
loud opposition from consumer advocates, artist representatives, and
independent record labels, which both compete with and sometimes depend on
major labels for distribution. Post-merger, the recorded music business is now dominated
by just three major labels—UMG, Sony, and Warner—which gives the remaining
majors even more leverage over music distribution platforms and artists.

The major labels own large catalogs of copyright, and
through those holdings the majors control the vast majority of the music
streamed or purchased today. As Public Knowledge testified [link] before the
Senate Antitrust subcommittee, this gives the majors leverage to demand
disproportionately high prices or partial ownership from online streaming or
download platforms, which raises prices for fans and squeezes the share of
revenues that goes toward independent and unsigned artists, who don’t have as
much bargaining power. This in turn makes it harder for independent labels to
earn a sustainable income, which makes the majors a more attractive choice for
artists looking for a label.

Of course, that’s only if the majors agree to license at
all. If a new music hub wants to launch but the combined UMG/EMI is refusing to
license its 37-40% of the recorded music market, it’s near impossible to
attract enough subscribers or buyers to become viable business. This only leads
to fewer outlets for musicians to reach their fans and sell their music.

Now that the UMG/EMI merger has been permitted by the U.S.
Federal Trade Commission and Universal has just recently finished selling off
parts of EMI as required by European antitrust regulators, the full impacts of
the merger remain to be seen. We have seen potential Spotify competitor Deezer
be purchased by Warner owner Access Industries, but the overall consequences of
the merger will likely not unfold for some time yet.

We’ll be talking about all of this and more at our SXSW
panel tomorrow at 3:30, so if you’re in town don’t miss a great conversation
about an issue that will shape the development of the online music business.