Message to Universal: Buying Competitors Does Not Fight Piracy

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As part of its sales pitch to antitrust regulators, Universal Music Group, the largest record label in the world, is now claiming that it absolutely must buy the record label EMI in order to fight piracy. Yes, Universal is seriously claiming that the pressures of online copyright infringement are forcing it to buy one of its largest competitors in an already very consolidated market. On this point, Universal is wrong. Universal is not trying to buy EMI because it wants to fight piracy, and even if it was, this deal would likely have the exact opposite effect. The best way to fight piracy is to offer fans a quick, easy, reasonably priced legal alternative to infringement. Those consumer-friendly alternatives are much more likely to thrive when no single record label has a large enough market share to effectively veto any new service it doesn’t like. 

As part of its argument, Universal insists that it makes new digital distribution deals as often as it can to discourage copyright infringement. But we can’t ignore history, which tells us that the established major labels, including Universal, are often reluctant to work with any new online services that might disrupt the labels’ current way of doing business.

For example, when Universal sued the video site Veoh for copyright infringement, Veoh ultimately won in court, but not before the litigation bankrupted it. Last year Universal was the first of the major labels to sue Grooveshark, and Universal sued streaming service Deezer in France after Deezer refused Universal’s demand that Deezer limit its freemium tier to five consecutive songs. Luckily, the French courts agreed with Deezer, holding that Universal’s behavior was “an abuse of a dominant position.” If we look further back to 2006, we’re reminded of when Universal sued MySpace for its users’ copyright infringement, and even brought a suit against Grouper.com, which was owned by fellow major label Sony. 

The point is actually not that Universal is a particularly bad actor, but rather that we have seen this kind of behavior time and time again from incumbent major labels. In a way, it makes sense: the companies who benefitted most from how-things-used-to-be are the least enthusiastic about how-things-are-now. As a result, we must be careful not to let incumbent businesses with an incentive to stifle new services use their market power to veto any new company that makes them feel threatened.

When it’s not outright blocking a new application, a dominant major label could instead demand high fees, unreasonable conditions, or an ownership stake in the new distribution service. In addition to simply increasing that label’s stranglehold on the industry, this makes it harder for indie labels to survive, because they won’t be able to take advantage of the new, innovative, but doomed services that fail to curry favor with the dominant record label.

We also know that Universal’s bid for EMI is not motivated by digital piracy because it has been buying up smaller labels decades since long before Napster made its entrance on the music scene. Universal has bought Geffen Records, DGC Records, Universal Republic Records, Univision Music Group, Impulse! Records, and V2 Music Group, to name just a few. In 1998, Universal’s parent company Seagram also bought and merged the PolyGram label, which itself had already purchased Island Records, Interscope Records, Def Jam Recordings, Motown, Mercury Records, Mercury Nashville, Verve Records, and Polydor Records, among others. Seen in this light, Universal’s bid for EMI is not a response to piracy: it’s just one more step in a decades-long trend of consolidation in the recorded music business.

In the recorded music market, we rely in part on competition as a means to an end. Public Knowledge wants to preserve competition in the recorded music space because competition pushes those companies to keep providing better services at lower prices in more convenient ways. This ultimately helps both musicians and their fans.

While we applaud Universal for the new deals it makes with new distribution companies, giving Universal the power to block new services will only throttle the development of creative new music services, which ultimately just drives consumers toward illegal distributors. A competitive music economy that encourages better and easier legal access for fans is better for everyone: musicians, fans, and labels alike.

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