March 24, 2023

Media Decoder Blog: In Universal-EMI Deal, Indie Labels Await Scraps From the Table

Who gets the castoffs from the biggest record company on the planet?

That is the question gripping the music industry as the Universal Music Group negotiates with European regulators over its $1.9 billion takeover of EMI Music, a deal that would give Universal — already the dominant music company, with hundreds of acts from Justin Bieber to Plácido Domingo — a market share of at least 40 percent.

After tough scrutiny from the European Commission, Universal now seems willing to sell large chunks of EMI as concessions to regulators — as much as half the company could be put up for sale, by one analyst’s estimate. And in one scenario now playing itself out with consequences at all levels of the industry, the biggest beneficiary of this process might be independent labels.

This week it emerged that Lucian Grainge, the chairman of Universal, had made a bold offer to independent labels and executives, giving them the opportunity to buy about $300 million worth of European rights to EMI’s music, according to a report in The Financial Times that was corroborated by recipients and others who had seen the letter. Those assets include the catalogs of Virgin, Mute, Chrysalis and other labels, as well as some of EMI’s vast holdings of classical music and jazz.

The letter came as a surprise given what has been a unified stance by the indies against the deal. Impala, an organization in Brussels that represents thousands of small labels, has been one of its loudest critics. And last month Martin Mills, founder of the Beggars Group, one of the largest and most successful independents — its artists include Adele — minced no words when he spoke against it at a United States Senate hearing.

But the responses to Universal’s offer revealed that not everyone in the independent world opposes the merger — at least, that is, as long as there might be something to be gained from it.

Daniel Miller, who founded the influential label Mute in 1978 and sold it to EMI in 2002, said Mr. Grainge’s letter was aimed at entrepreneurs like him who had sold their babies to EMI but now had a chance to get them back. And he said he was interested in buying.

“Universal is already the biggest music company in the world — that’s not going to change,” Mr. Miller said in an interview on Thursday. “This is an opportunity to strengthen the independent sector. In my personal view, it would be good for Mute, it would be good for our artists, and good for the whole independent distribution network.”

Another respected independent figure who now appears to favor the deal is Patrick Zelnik, the head of the French label Naïve and an Impala board member. He is teaming with Richard Branson on a possible bid for Virgin. Mr. Branson — who founded the label in 1972 and sold it to EMI 20 years ago — called Virgin a “sleeping beauty” that “has been mismanaged in the last 10 years.”

The shocked industry response to Mr. Zelnik’s announcement suggests what might be a strategy by Universal to divide and conquer — by offering deals that can benefit certain small labels, it would seem, Universal has been able to make allies of some former foes. Impala, for example, once unanimous in its opposition, now shows a rift.

But Universal has not been fully successful in damaging the opposition. On Monday, a majority of Impala’s board voted in favor the merger — but the group’s official stance remains unchanged, since the vote came short of a two-thirds requirement to overturn its earlier vote. And it wasn’t long before more indies rallied to the opposition. Merlin, a group that negotiates licensing deals on behalf of thousands of independents, gave its support — unanimously, it noted.

And some indie figures are firm in their opposition to the merger, regardless of the possibility of picking up Universal’s crumbs. In an interview on Thursday, Mr. Mills said he was not interested in buying any of EMI, and still believed that regulators in Europe and the United States should block the deal outright.

“My position is that no remedies are great enough to cure the damage to the market of having a behemoth of this size,” Mr. Mills said. “However, if it is going to go through anyway, it’s better to have remedies than to have nothing.”

The most novel answer to the question of who should get divested EMI assets came in the form of a letter to The Financial Times on Thursday from three musicians who represent the Featured Artists’ Coalition in London. The three co-heads of the group — Ed O’Brien of Radiohead, Nick Mason of Pink Floyd and the 1960s British pop star Sandie Shaw — said that the copyrights for songs should be offered to the artists who created them.

“To sell them to other corporations, whether large or small, is just a perpetuation of an old business model, which has seen the recorded music business halve in value over 10 years,” the artists wrote.

“We do not need to repeat the mistakes of the past,” they added.

Ben Sisario writes about the music industry. Follow @sisario on Twitter.

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Complete Album Sales Showed Slight Growth in 2011

For the beleaguered music industry, any positive news about sales is cause for celebration. And in 2011, the numbers were slightly up.

Sales of complete albums, the industry’s most profitable product, reached 330.6 million in the United States last year, a 1.3 percent increase from 2010, according to Nielsen SoundScan, which collects sales data from retailers. Some businesses might call that level of growth flat, but since album sales had fallen every year since 2004, it was a notable improvement.

Some of that marginal growth came from one album, Adele’s “21” (XL/Columbia) which sold 5.82 million copies, the best one-year sales count for any album since Usher’s “Confessions” sold 7.98 million copies in 2004.

The increases were largely driven by consumption of digital music, whose growth quickened last year after a slow 2010. Last year 1.27 billion individual tracks were downloaded in the United States, up 8.5 percent from the year before, and sales of complete digital albums reached 103.1 million, a 19.5 percent gain from 2010.

Yet music executives, accustomed to the industry’s downward sales slope over the last decade, were cautious about interpreting last year’s gains as representing more than a small uptick. According to the Recording Industry Association of American, revenue from recorded music fell 52 percent from 2000 to 2010.

“It’s encouraging,” said Rob Stringer, the chairman of Columbia Records, which distributes Adele’s album in the United States. “But we’d be silly to jump up and down.”

After Adele’s “21,” the most popular titles of 2011 were Michael Bublé’s “Christmas” (143/Reprise), with 2.45 million sales; Lady Gaga’s “Born This Way” (Interscope), with 2.1 million; Lil Wayne’s “Tha Carter IV” (Cash Money/Universal Republic), with 1.92 million; and the country singer Jason Aldean’s “My Kinda Party” (Broken Bow), which had 1.58 million sales.

Adele, 23, a British retro-soul singer, has a straightforward style that is at odds with the electronic dance-pop that dominates the Top 40, yet her songs “Rolling in the Deep” and “Someone Like You” became hits on multiple radio formats. That helped her album, released in February, remain one of the Top five sellers for almost every week of the year.

Mr. Stringer attributed Adele’s success to the quality of her music, to a marketing plan that made use of all the modern tools like social media, and strategically chosen placements in film and television. Yet the label avoided the excessive branding deals and product endorsements that could have turned her fans off.

“We were omnipresent but not overexposed,” Mr. Stringer said.

Analysts also pointed to several beneficial trends in retail. Online, record labels and digital shops like iTunes and Amazon now regularly promote deluxe versions of albums, which offer bonus content for a premium price.

“Digital retailers are getting better and better at giving customers what they want,” said David Bakula, a senior analyst at Nielsen.

For the first time, digital music purchases surpassed those of physical albums like CDs and vinyl records: 50.3 percent of all units sold — whether singles or full albums — were digital, according to SoundScan.

But fire-sale pricing by retailers online and offline may be conditioning consumers to expect unsustainable discounts. In a promotion that enraged brick-and-mortar record stores, Amazon briefly sold the download version of Lady Gaga’s album for 99 cents. And to lure consumers to ever-shrinking CD racks, big-box stores regularly price “catalog” albums — titles more than 18 months old — at $5 or less.

Those discounts may have contributed to one of the more surprising statistics in SoundScan’s annual report: sales of CDs, after dropping 19.5 percent in 2010, fell only 5.7 percent last year, to 223.5 million. (As recently as 2004, however, total CD sales were almost three times that number.)

And sales of vinyl albums, which have bolstered independent shops, rose 36 percent to 3.9 million, their highest level since SoundScan opened in 1991.

Analysts and music executives pointed to the continued growth of digital music — and the expansion of streaming services like Spotify and MOG, whose revenue from advertising and subscriptions is not tracked by SoundScan — as the most promising signs for an industry in which hitting a low point is seen as a positive indicator.

“It’s a bit more than a blip,” Michael McGuire, a media analyst at Gartner, said of the slight growth in music sales last year. “I think it’s the sign that the music industry is finally starting to come to figure out the digital present and future, at least when it comes to download sales. Perhaps we’ve seen the bottom.”

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