SXSW and the Future of Digital Music Distribution

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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.

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