Consumer Groups Oppose Music Industry Merger Before the FTC

Two consumer groups -- the Consumer Federation of America and Public Knowledge -- have opposed the merger of two of the country's four major music recording companies, EMI and Universal Music Group, before the Federal Trade Commission. Read the groups' lengthy FTC submssion. A summary of the groups' antitrust analysis appears after the jump.

    This paper presents a detailed analysis of the proposed merger between Universal Music Group
(UMG) and EMI by applying the standards and methods outlined in the recently revised Department of
Justice/Federal Trade Commission Merger Guidelines. It shows that the UMG‐EMI merger is “an unfair
method of competition” that constitutes “an unreasonable restraint of trade” because it will
“substantially lessen competition” and is “likely to enhance market power.” Simply put, the postmerger
firm will have a strong incentive and increased ability to exercise market power, particularly
in undermining, delaying, or distorting new digital distribution business models, in a market that has
been a tight oligopoly for over a decade.

    The merger creates a highly concentrated market by eliminating one of only four major record
labels and results in an increase in concentration that is five times the level that the DOJ/FTC identify
as a cause of concern. The recent history of anticompetitive, anti‐consumer conduct by this tight
oligopoly and the role of EMI as a maverick in the digital era compound the anticompetitive effects of
the merger and significantly increase the likelihood that the merger will not only result in higher
prices but also undermine incipient competition.

    Claims that piracy will prevent the abuse of market power are directly refuted by evidence on
consumer purchasing behavior, estimates of elasticities of demand by academics, and marketing
research conducted by the music industry. The analysis demonstrates that the industry has
chronically and grossly overestimated the role of copyright infringement in the development of digital
distribution. Correcting this misrepresentation of the extent of infringement is necessary to ensure
that policymakers have a proper understanding of the full benefits of digital technologies.
The strong parallels between the impact of the merger on the development of digital
disintermediation in the music sector and the recent case brought by the Department of Justice against
e‐book publishers highlight the economic efficiency and consumer benefit from the digital distribution
of goods and services. The anticompetitive tactics of the dominant, incumbent, physical space firms
remind us that these firms will stop at nothing to delay change and preserve their dominance.
Antitrust authorities and others must use the full range of tools available to protect competition,
innovation, and consumers and ensurethat policymakers have a proper understanding of the full benefits of digital technologies.

    The strong parallels between the impact of the merger on the development of digital
disintermediation in the music sector and the recent case brought by the Department of Justice against
e‐book publishers highlight the economic efficiency and consumer benefit from the digital distribution
of goods and services. The anticompetitive tactics of the dominant, incumbent, physical space firms
remind us that these firms will stop at nothing to delay change and preserve their dominance.
Antitrust authorities and others must use the full range of tools available to protect competition,
innovation, and consumers and ensure that consumers and the economy enjoy the full benefits of the
development of digital technologies.

Comments

[Rey Caprico]

I am in favor to the consumer groups on the opposition of the merger of music industry to the federal trade commission. It only will just create a highly concentration in market. Music industry should be apart from FTC to create good label in the future.