“Even an American utilities company wouldn’t try this on!”
That’s how one US lawyer summed up Universal Music’s proposed acquisition of Downtown Music Holdings to Helen Smith, the CEO of IMPALA. And in fewer than ten words, it captures why Europe’s independent music trade body thinks the European Commission will slam the door shut on Lucian Grainge’s latest shopping spree.
Writing in a strongly-worded op-ed, Smith argues that the EC is unlikely to look kindly on what she calls Universal’s return as a “serial acquirer” - especially given that this is not the first time Universal and the EC have faced off over the mega-major’s strategies for market dominance.
“Why are we back here again?” is what many people across the industry have been asking Smith, who has spearheaded a well-orchestrated pan-European lobbying effort to block the Downtown deal.
And it’s a fair question: back in 2012, the EC forced Universal to scale back its ambitions when it tried to buy EMI, setting what it considered acceptable limits for market concentration. But now, like the movie villain that keeps on coming back, Lucian Grainge’s “most successful music company in the history of music” returns, even bigger, “still hoping (somewhat unrealistically) that the EC will see it differently this time around”. It’s the corporate equivalent of a horror movie franchise.
The EC’s likely response? “They already dealt with this, the risks they flagged before have come true, despite the remedies”, Smith writes. “This time around, they won’t take any chances”.
Smith points to market share data that exposes how Universal’s gambit to get its deal past European regulators may have been misguided from the offset - and exactly why the EC needs to act.
What’s startling is that presumably Universal was fully aware of its market share - and increase to market share - at the time that it offered to buy Downtown. The fact that the deal was positioned very much as a transaction between its artist services division, the ‘independent’ Virgin Music Group, and Downtown suggests that, perhaps, Universal hoped that a little sleight of hand and muddying of the message would allow the deal to slip through the back door without scrutiny.
Looking at Europe, excluding the UK - the EC’s remit - “UMG’s market share is 18% higher now than it was in 2012”, says Smith’s analysis. More strikingly, Sony Music, its nearest rival, “has just over half of UMG’s market share”, meaning that the gap between them “is now 31% bigger than in 2012”.
And that is despite Sony boss Rob Stringer’s recent boast about his company having a “higher independent market share than any other label or distributor” via its services divisions The Orchard and AWAL. In other words, Universal is already trouncing its nearest rival in Europe: acquiring Downtown wouldn’t help it compete, it would obliterate the competition and make its position even more entrenched.
But it’s not just about recorded music market share. The EC also looks at “control shares” - power across recordings owned or distributed plus repertoire where UMG owns the publishing rights or has administration deals with songwriters or other publishers. The TikTok dispute earlier this year provided a masterclass in what this means in practice. It wasn’t just UMG artists that vanished from the platform, but also those using Universal for publishing and distribution.
“So yes, please let’s bring the EC’s assessment right up to date”, Smith writes pointedly.
What’s different this time is Universal’s strategy as what Smith calls a “serial acquirer”. The evidence? She points out that three of the world’s biggest independent distribution options have been hoovered up “in just a few months”: PIAS, FUGA and CD Baby - with many other smaller deals in recent years. And of course, if the Downtown deal goes through, then the body count will include Songtrust on the publishing side and Curve, one of the world’s biggest royalty accounting services.
“These are all innovators and disrupters”, Smith notes. “Is there a saying, if you can’t beat em, buy em?”
To Smith, the implications are clear. With fewer independent options for artists and labels, Universal gains control over rivals’ market access. Plus, there’s the rather awkward matter of commercial data. All these distribution and royalty services provide what Smith calls “one of the most sophisticated and complete webs of price tracking your rivals imaginable in the music market”.
This echoes points that Stringer also articulated, saying that Sony’s significant market share in the indie sector alongside its significant investment in “analytics and technology” gives it the “inside track” on potential earnings when it is doing deals to acquire catalogue.
Universal might propose that it keep Downtown’s data separate by putting in place some kind of ‘firewall’ between the two strands of the business. But, “no regulator wants to rely on firewalls”, when it comes to this sort of data insight Smith notes, adding bluntly: “they just don’t work”.
In many ways the regulatory climate couldn’t be worse for Universal. The UK’s Competition And Markets Authority recently reviewed the music market and, while it didn’t launch a full inquiry, it “specifically flagged further consolidation as a cause for concern”, states Smith.
More recent academic work by Dan Fowler and Katherine Bassett in their report ‘Combating The Emergence Of A Two-Tier Music Streaming Market’, recommends “restricting and reversing market consolidation to maintain competitive diversity” as a matter of immediate attention.
Professor Amelia Fletcher - a prominent economist, an artist and label owner, and former regulator - also recently weighed in with concerns. The chorus of opposition is growing louder.
Smith saves her most damning assessment for last. Universal has demonstrated what she calls its “juggernaut strategy” - the power to “demonetise repertoire on Spotify and other services overnight”. As noted earlier, we also saw this play out with TikTok, where UMG’s reach extended far beyond its own roster.
The digital market is three times bigger than in 2012 when the European Commission last had to clip Universal’s wings - but those feathers have grown back bigger, brighter and more lustrous, and with more muscle behind them.
For a market leader to control “not only a big part of rivals’ access to market” but also to be able to “access their pricing and other sensitive data” would be “unimaginable in any other sector”, she notes.
The EC forced a retreat by Universal once before. This time, Smith argues, they’ll likely go for an “outright ‘no’ scenario, forcing a full resale” of Downtown, and asking questions about why Universal is “dragging them back through all this nonsense”.
“Balance and harmony in the music ecosystem depend upon it”, she concludes.
Whether Universal’s top team see it that way is another matter entirely. But if Smith’s assessment of the regulatory landscape is correct, Papa Grainge’s shopping days in Europe might be numbered.
