by Gerard Scimeca, CASE Chairman
April 18, 2022
The music industry has recently come under significant antitrust scrutiny. At the end of January, the Competition and Markets Authority— the United Kingdom’s competition regulator —announced it is completing a study that will “examine the music streaming market, from creator to consumer, paying particular attention to the roles played by record labels and music streaming services.”[1] This notice follows action from the United Kingdom’s Government’s Department for Digital, Culture, Media & Sport — its equivalent to the United States’ Federal Trade Commission — which launched an investigation into streaming profits that are not making their way from labels to artists, performers, and composers.[2]
Increased Music Industry Marketplace Concentration
Anyone who ever collected vinyl likely has a fondness for the days when you could hold a record in your hands and note the album’s distinct artwork and logo from one of the many recording labels at the time. Whether records came from a big label such as Columbia, RCA, or Atlantic, or a smaller imprint such as Motown, Sire, or Windham Hill, the music industry always seemed wide open, creating a seemingly endless supply of new music from every genre.
Of course, a lot has changed over the years beyond just the demise of vinyl. Today when we hear a song on the radio, at a concert, in a movie, or especially on a streaming service, it is overwhelmingly likely that it is owned by either Universal Music Group, Warner Music Group, or Sony Music Entertainment. After several decades of mergers and buyouts, six major record labels are now three mammoth companies that dominate the music industry.[3] These three conglomerates also own the three major publishers, meaning that they control the vast majority of copyrights needed to perform a song via the airwaves or the internet.[4]
It is easy to fathom how seventy years of pop music now being owned by just three companies creates an enormous imbalance in leverage, licensing, publishing, and copyright across the entertainment industry that is sustained by consumer spending. This issue has only gotten worse since the advent of streaming.
Streaming Has Compounded the Concentration Problem
Streaming services — Spotify, Amazon, Apple, and Google (YouTube) — exist only because the three largest labels have struck licensing deals with them, and the largest labels each took ownership stakes in Spotify.
Streaming services, even mega companies like Apple and Google, are entirely dependent on the big three labels’ catalogs. To ensure that they do not miss out on the “next big thing,” the labels use their geyser of revenue to sign, on average, two new artists per day and hold them under contract, solidifying their grip on the playlists of tomorrow.[5]
As a result, each of the major labels are now estimated to receive $1 million an hour from streaming services alone, accounting for 80 percent of all industry revenue.[6] From such profits, the labels have been able to gobble up competitors and pay enormous sums for ownership rights to the works of some of music’s most iconic artists, including Bruce Springsteen ($550 million), Bob Dylan ($250-300 million), and Neil Diamond (undisclosed).[7,8,9]
The benefit for big music in buying these catalogs is that all future revenue earned from these works goes directly to them and does not need to be split with the artist. This, however, raises another competition question: If Warner, Universal, or Sony own a catalog outright, don’t they make more money when songs from that catalog are sold or played by a streaming service than for songs they do not own outright and must split with the artist?
Prospect for U.S. Antitrust Action
U.S. critics of the three music giants say they are acting no differently from BigTech, using their enormous market clout to set the price and self-preference their catalogs. Amazon, for example, does this by facilitating vendor selling while also serving as a competing vendor.
Self-preferencing has long drawn the ire of and mobilized the U.S. Congress. In a tweet, Sen. Elizabeth Warren put the body’s concerns succinctly: “You can be an umpire, or you can be a player — but you can’t be both.”[10]
Recently, we’ve seen Congress act against Big Tech for this very reason. Sens. Chuck Grassley and Amy Klobuchar also introduced bi-partisan legislation to prohibit the dominant tech platforms from steering consumers to native and promoted products at the expense of their market competitors.[11] The U.S. House Subcommittee on Antitrust, Commercial and Administrative Law of the Committee on the Judiciary has also held hearings and published an over 400-page majority staff report on Competition in Digital Markets that singled out Big Tech for running the same marketplaces that they compete in.[12] It recommended that the government “reduce conflicts of interest through structural separations and line of business restrictions” and “implement rules to prevent discrimination, favoritism, and self-preferencing.”
This self-preferencing, some regulators and lawmakers argue, is stifling competition and leading us to an era of digital monopolies. What the labels appear to be doing — outright buying the catalogs of artists to ostensibly to make more money by favoring those songs — seems to be cut from the same cloth and can spell legislative trouble for the conglomerates in the near term.
Self-Preferencing Can Violate the Sherman Antitrust Act
In a recent paper for Competition Policy International, Daniel A. Hanley, a policy analyst with the Open Market Institute, eloquently underscored how self-preferencing can violate Section 2 of the Sherman Antitrust Act. He noted how willful acquisition or maintenance standard includes “predatory, exclusionary, or unfair practices as well as practices that unnecessarily and arbitrarily impair the market to the detriment of rivals.” [13]
The sharp concentration of the music industry and the collusive, predatory behavior of the major labels — especially with respect to the lengths they have recently taken to self-preference — does not just harm “a single firm;” it affects nearly every artist, business, and music consumer in the country. As such, a strong case can be made that they are violating Section 2.
Conclusion
In the U.S., the issue of antitrust hinges on whether the industry and its vast vertical integration is anti-competitive, or as the industry itself claims, merely an efficient and inevitable consolidation in a digital economy. There is also the question regarding to whom it may be anti-competitive to; artists, consumers, or any number of parties that touch this industry.
Whether the music industry in general and the major labels in particular will face antitrust penalties in the U.S. remains to be seen; however, wide concern among lawmakers and regulators over self-preferencing will without question generate further conversations in the weeks and months to come.
Gerard Scimeca is an attorney, co-founder, and chairman of CASE, Consumer Action for a Strong Economy, a consumer advocacy non-profit organization.
Citations
[1]Sillars, James. “Music Streaming Investigation Will Examine Market ‘from Creator to Consumer’.” Sky News, Sky, 28 Jan. 2022, https://news.sky.com/story/music-streaming-investigation-will-examine-market-from-creator-to-consumer-12526311/.
[2]Sutherland, Mark. “U.K. Parliament Slams Major Music Labels, Backs Artists in Damning Report on Streaming Revenue.” Variety, 14 July 2021, https://variety.com/2021/music/news/uk-government-streaming-report-labels-artists-1235020210/.
[3]“Two-Thirds of All Music Sold Comes from Just 3 Companies.” Digital Music News, 3 Aug. 2016, https://www.digitalmusicnews.com/2016/08/03/two-thirds-music-sales-come-three-major-labels/.
[4]Ingham, Tim. “The Three Major Publishers Generated More than $3.2 Billion in 2019 — That’s $369,000 Per Hour.” Rolling Stone, 2 Mar. 2020, https://www.rollingstone.com/pro/features/the-three-major-publishers-generated-more-than-3-2-billion-in-2019-thats-369000-per-hour-959699/.
[5] Ingham, Tim. “Are the Major Record Companies Signing Too Many Artists?” Rolling Stone, 14 June 2019, https://www.rollingstone.com/pro/features/are-the-major-record-companies-signing-too-many-artists-847697/.
[6] “It’s Happened: The Major Labels Are Now Generating over $1m Every Hour from Streaming.” Music Business Worldwide, 25 Feb. 2020, https://www.musicbusinessworldwide.com/its-happened-the-major-labels-are-now-generating-over-1m-every-hour-from-streaming/.
[7] Sisario, Ben. “Bruce Springsteen Sells Music Catalog in Massive Deal.” The New York Times, 16 Dec. 2021. NYTimes.com, https://www.nytimes.com/2021/12/15/arts/music/bruce-springsteen-sells-music-catalog.html.
[8] https://www.forbes.com/sites/marisadellatto/2022/01/24/bob-dylan-sells-recording-catalog-to-sony-in-major-deal-one-year-after-he-sold-songwriting-catalog/?sh=1b4a2e9d2c59
[9] “Neil Diamond Sells Songwriting and Recording Catalogue to UMG.” NME, 2 Mar. 2022, https://www.nme.com/news/music/neil-diamond-sells-songwriting-and-recording-catalogue-to-umg-3173734.
[10] “Https://Twitter.com/Ewarren/Status/1340044102386266124.” Twitter, https://twitter.com/ewarren/status/1340044102386266124. Accessed 28 Mar. 2022.
[11] Klobuchar, Amy. American Innovation and Choice Online Act. S.2992.
https://www.congress.gov/bill/117th-congress/senate-bill/2992/text
[12]Nadler, Jerrold, and David Cicilline. Investigation of Competition in Digital Markets. 2020.
https://judiciary.house.gov/uploadedfiles/competition_in_digital_markets.pdf?utm_campaign=4493-519
[13]Hanley, Daniel. How Self-Preferencing Can Violate Section 2 of the Sherman Act. SSRN Scholarly Paper, ID 3868896, Social Science Research Network, 16 June 2021. papers.ssrn.com, https://papers.ssrn.com/abstract=3868896.
