Amelia Fletcher, the competition law expert who previously criticised the demonetisation of grassroots artists by Spotify, has written to the European Commission urging it to conduct an in-depth investigation into Universal Music’s deal to buy Downtown Music Holdings, and with it music companies like FUGA, CD Baby, Songtrust and Curve.
That deal creates significant competition law concerns, she says. Because it will “further strengthen UMG’s already significant negotiating power” in the streaming market. And it will then likely use that increased negotiating power to disadvantage its independent rivals.
That concern is not “hypothetical”, she adds, given Universal has “claimed credit for Spotify’s demonetisation policy”, which saw the introduction of “arbitrary” thresholds that any one track must pass before it is allocated any of the revenue the streaming service shares with the music industry each month.
That’s a policy pushed for by Universal which results in more money flowing to it and the other two majors - Sony Music and Warner Music - while disadvantaging millions of independent artists and labels.
Fletcher is a professor at the University Of East Anglia and former non-executive director for the UK’s Competition & Markets Authority, who is also a musician and runs a small label.
In a letter to Commission EVP Teresa Ribera, who oversees EU competition policy, Fletcher expresses concern that Universal’s Downtown deal “represents another step in UMG’s broader strategy of undermining the vitality and viability of the independent music sector” with a view to strengthening its own position and “potentially also that of the other two majors”.
Universal’s takeover of Downtown will also present the millions of independent artists, labels and publishers that currently make use of FUGA, CD Baby, Songtrust and/or Curve with a “difficult choice”.
Either stay and become reliant on Universal - and give it sight of their commercial data - despite the fact the major’s “long-term interest is in undermining their effectiveness as competitors”. Or “leave and incur substantial switching costs in an environment with fewer meaningful alternatives”.
“It is vital that this anti-competitive process is stopped”, Fletcher says, adding “I strongly urge” the European Commission “to scrutinise this deal thoroughly to really understand the threat it poses for competition, choice and innovation in the music industry”.
Universal announced its plan to buy Downtown last December. The deal has been strongly criticised by the indie label community because it will give the major control over a distribution and rights admin infrastructure that is often relied upon by its independent rivals.
Aside from the two million plus artists that make use of CD Baby, many labels rely on Downtown or FUGA for distribution or label services. Many more indie labels that utilise the deals Merlin negotiates with the streaming services, rather than working with a distributor, still rely on FUGA to deliver their recordings to the digital platforms. And others use Curve to manage royalty payments to artists.
The Downtown deal is part of a wider strategy at Universal to grow through the acquisition of successful independent music companies, with [PIAS] and 8ball Music also being acquired in the last year. This, says pan-European trade group IMPALA, is all part of a “juggernaut strategy” via which Universal wants to “roll up strategic businesses and push its streaming agenda onto digital service providers”.
Representatives from across the indie label community, including IMPALA, have called on competition regulators around the world to intervene and block the Downtown deal.
Regulators in both Austria and the Netherlands reviewed the acquisition, with the latter referring it to European Union regulators at the Commission. It then announced in April it would examine the transaction, telling Universal to formally notify the Commission about the deal.
Once Universal has completed that notification process the Commission will begin an initial assessment of the transaction. Based on that it will decide whether to instigate a ‘phase two’ of the process, which involves a much more in-depth investigation.
In her letter, Fletcher says that the Commission should undertake a more in-depth investigation into the impact of the Downtown deal on indie artists, labels and publishers, because “the independent sector is essential to competition, creativity, culture and growth in the music industry”.
And “for this valuable sector to be preserved, independent record labels and publishers need continued access to an independent ecosystem of critical distribution and administration services – the interests of which are aligned with their customers in the independent sector”.
Fletcher then goes into more detail about some of the specific concerns raised by Universal’s Downtown deal. That includes the fact the deal would “give UMG access to critical commercial data” relating to the artists, labels and publishers using FUGA, CD Baby, Songtrust and Curve.
The major could use this data to “compete unfairly”, she adds, “for example by targeting and signing artists and songwriters that are currently signed to independent labels and publishers”, or by targeting and signing up-and-coming talent “based on data that is unavailable to independent labels and publishers”.
This, she adds, “mirrors the recent case” in which the EU’s Directorate-General for Competition “took action against Amazon for using marketplace data to benefit its own operations as a supplier”.
A similar risk “clearly arises” with the Universal/Downtown deal, she goes on, which is unlikely to be addressed by the simple “imposition of firewalls”, which would be if Universal committed to keep its data and the data of Downtown’s indie clients separate.
“The combined effect of the conduct outlined above is that this acquisition will lead to the revenues of independent labels being substantially squeezed”, she concludes, “making it ever harder for them to compete for talent in the A&R market, or to support the smaller scale talent that collectively contributes so much to European consumers, culture and growth”.