When 4 Become 3: Warner Music Group + EMI Potential Merger and What That Means For Competition

During the first week of May 2011, a Russian-born, New York-based oil and industrial billionaire named Len Blavatnik, who is founder and owner of a firm called Access Industries, put up $3.3 billion to buy the world’s 3rd-largest major-label recorded music firm, Warner Music Group [WMG], from a group of owners that included WMG’s chief executive, Edgar Bronfman, Jr.

No sooner did Blavatnik buy WMG, which is expected to close in September 2011, than the media are reporting that he might also put up enough money to buy 4th-ranked EMI from Citigroup, the banking and financial services company which has owned EMI since repossessing it from Guy Hands’ insolvent Terra Firma equity business back in February 2011. Edgar Bronfman had also broached the idea of a Warner-EMI merger in the past, so one would think Blavatnik may be the guy with the money to consummate such a merger.

If Blavatnik does decide to buy EMI, it could save Citigroup the trouble of staging an auction for the record label’s assets, which is said to include a bigger recorded music catalog than WMG, as well as extensive publishing rights. Both of those, many think, are more valuable than the current product is. So extensive are EMI’s publishing holdings that they recently decided to no longer do business with ASCAP in licensing digital performance rights.

Forbes magazine’s list of the world’s billionaires for 2011 puts Len Blavatnik in 80th place with over $10 billion of wealth, so perhaps he can afford to buy EMI, but what would that mean if it were to happen? To put it simply, it’ll mean WMG and EMI will be combined, and that, in turn, means the “Big Four” recorded music label groups will become a “Big Three.”

Whenever an industry gets more consolidated, it means less competition. And less competition could result in less wiggle room for recording artists signed to any of what would become the “Big Three” of Universal Music Group [UMG], Sony Music Entertainment [SME] and a combined WMG-EMI.

IMPALA, a European association of independent music companies, has come out against the WMG-EMI merger, and is pushing for regulators in Europe and the US to investigate what it would mean for competition. They also propose that European regulators block a merger without remedies for the indies.

Meanwhile, back in the US, recorded music sales through May 8, 2011, according to Nielsen SoundScan, are up for the first time in 6 years, with digital sales accounting for more than half of all transactions. Part of the surge was attributed to availability of The Beatles’ catalog on iTunes.

Now that digital has become half of all recorded music sales in the US, it’s as good a time as any for those who thinks a major label still rocks to rethink that notion, stay independent, own your masters, and play as many live gigs as you can.  And save the major label that million or so they’d be spending on your career, while saving yourself the trouble of watching your share of the sales get eaten by the beast that is recoupable expenses.

One of EMI’s many hits is a Spice Girls song from 1996 entitled “2 Become 1.” As much as it was a love song, there’s nothing to love about the major labels when 4 become 3.

Do you think a possible Warner Music Group-EMI merger should send a message to artists that they’re better off being independent and in control of their destinies?