The pressure continues to build on European Union regulators over their investigation into Universal Music’s acquisition of Downtown Music Holdings.
More than 200 business leaders from across the independent music sector have publicly backed a call for the European Commission - which is currently undertaking an initial ‘phase one’ investigation into the deal - to launch a full ‘phase two’ investigation that will scrutinise the transaction in much more detail.
In an open letter to Commission EVP Teresa Ribera, the indie sector leaders say that “everyone has a role to play” in ensuring a successful European music industry, “from the biggest music company in the world to the independent disruptive start-up uncovering new genres and sounds”. But, “when acquisitions like this one occur and start to tip the scales too far, we must act”.
Independent music companies play “a vital role in promoting music innovation, fostering diversity and protecting culture”, the open letter continues. To fulfil that role, indies must not be “forced into structural dependence on our biggest competitor”, which is simultaneously forcing changes on the streaming business model that disadvantages independent labels and artists.
Labels and distributors backing the open letter include 4AD, Beggars, Better Noise, Chrysalis, Cargo, City Slang, Cooking Vinyl, Domino, Epitaph, Full Time Hobby, Greco-Roman, K7!, Matador, Merge, One Little Independent, Rough Trade, Secretly Canadian, Sub Pop, The Leaf Label, Warp, XL and Young.
The letter sets out the same concerns about Universal’s deal to buy Downtown - and its FUGA, CD Baby, Songtrust and Curve businesses - as have previously been outlined by indie label trade organisations, including IMPALA and WIN.
Allowing Universal to acquire Downtown will give it even more control over the digital music market, allowing it to put further pressure on the streaming services to alter their royalty payment systems in a way that favours the majors and the superstars. While also granting the major access to marketing, distribution and contract data about its rivals that will allow it to unfairly compete in the marketplace.
“This acquisition provides a key competitive advantage by allowing UMG to collect data from rivals using its services”, the letter states. “This data is far reaching, from distribution information - including artists and song trends, and performance on digital platforms - all the way through to critical business information such as pricing, contractual terms and strategic relationships”.
Universal “already controls over 40% of the recorded music market” in Europe, “near double the second biggest player”, the letter also claims. By absorbing Downtown’s “distribution, royalty accounting and rights management capabilities” - which are relied upon by “thousands of companies and artists across the independent sector” - the major “would further entrench its already significant market power”.
When reviewing the acquisition, the letter says, it’s vital that regulators consider “control share” as well as share by revenue. Many indie labels are locked in - contractually and/or logistically - to Downtown’s distribution or royalty systems. This means that, should the deal go through, they will “have to rely on our biggest competitor to connect our artists and their music to their fans”.
“The implications are profound”, the letter adds. “This consolidation would further enable UMG to act as a gatekeeper to some of the sector’s best services, shaping which music is heard, promoted and monetised”. That outcome creates risks “not only to the commercial fortunes of independent businesses”, it says, but also “to the creative breadth and diversity of music itself”.
“Fans will hear less of the new and more of the same”, it then warns. “Artists working outside the commercial mainstream will struggle to find traction. And a once-thriving creative economy will begin to stagnate”.
The European Commission announced last month that it is investigating Universal’s bid to buy Downtown. It has until 22 Jul to complete its initial investigation into the deal, at which point it could launch the more detailed phase two investigation.
At the end of their letter, the 200+ plus indie sector chiefs urge the Commission “to open a detailed phase two investigation to examine the deeper structural consequences of this transaction”, because “this proposed acquisition poses a clear threat to effective competition, innovation, and the growth of the music industry across the EU and globally”.