After Disney-Fox Acquisition, Should Movie Business Be Wary of What Happened to the Music Industry?
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Record labels combining their resources and rosters is nothing new. As far back as the 1970s, Steve Ross formed the original WEA (the precursor of the Warner Music Group) by consolidating the Warner Bros., Reprise, Atlantic and Elektra/Asylum labels under one umbrella. That merger was followed by an endless succession of similar alliances with the big players — EMI, Sony, Universal — stacking up iconic music brands like they were balls being racked for a game of pool.
Jim Urie, who experienced the merger merry-go-round first-hand during his years heading up Universal Music Group Distribution, insists all that consolidation has been a boon for the music industry.
“Size matters,” he says. “And that gives companies the financial means to make the capital investment in the systems that are needed for the more complex royalty payments and big data that come from streaming. It’s also given the companies the wherewithal to sign and develop new artists in the marketplace. Just look at this year’s Grammy nominations for proof of that. Though I’m not sure if that applies to the motion picture industry.”
But like the movie industry, the giants in the music space fall under umbrellas of multinational corporations whose bread and butter is not the latest album by Adele or Taylor Swift. Universal Music Group is currently owned by French water, utility and media conglomerate Vivendi, after acquisitions by Japanese electronics manufacturer Matsushita in 1990 and Edgar Bronfman’s Seagram in 1995.
In 1999, Seagram acquired PolyGram’s music holdings, merging the companies. Doug Morris, using his own experience from the turmoil of his messy exit from Warner Music Group, was instrumental in bringing the two companies together, handing the torch over to his hand-picked successor, Lucian Grainge, who has continued to guide the label to the top of the marketshare ladder. Today, Vivendi continues to be UMG’s corporate parent, despite occasional rumors of seeking a buyer for its music holdings. The latest self-touted price tag for UMG: $22 billion.
In 2003, Sony Music merged with BMG, a unit of German media giant Bertelsmann, combining the No. 2 and No. 5 music companies in terms of market share. Sony BMG became home to a wide roster of acts, and multiple imprints (among them: Columbia, Arista, Epic, Jive and RCA) catering to popular genres. But equally important was an effort to shore up a flood of looming layoffs, executives said at the time. The result: an initial culture clash between the Germans and the Japanese at a U.S.-based company. In the end, Sony bought out BMG’s share of the joint venture in 2008, having absorbed a significant portion of its staff, and pressed on finding success of unprecedented proportions following the arrival of Adele — who, appropriately enough, came through a joint venture between Columbia Records and XL Recordings.
Meanwhile, in 2011, EMI was again put on the auction block in a year-long process that would end with two victors: UMG, which bought most of EMI’s recorded units for $1.9 billion while Sony/ATV purchased the publishing arm for $2.2 billion (Parlophone and its associated acts, like Coldplay, went to Warner Music). The deals closed in Oct. 2012. Today, UMG, home to such labels as Republic, Interscope, Capitol, Def Jam, and Island, as well as Universal Nashville and UMe, leads in market share by 7% over number two, Sony, according to 2016 metrics. And it could be argued that centralizing shared services while offering creative independence to individual labels has produced a lean, mean machine – and thanks to the competitive spirit chairman and CEO Grainge espouses, a fighting one, too.
With only three major label groups operating today, that leaves Warner Music Group, which has also seen multiple owners in recent decades, including a 14-year home at Time Warner, arguably the largest company in the world when it was formed in 1990 by merging Time Inc. with Warner Communications. Later under the umbrella of AOL Time Warner, and then split off from the larger entity, Warner’s music assets were sold in 2004 to a consortium of investors led by Edgar Bronfman Jr. for $2.6 billion. WMG remains independently owned today, following a 2011 sale to Len Blavatnik’s Access Industries in 2011 for $3.3 billion.
Is the industry healthier for all these changes? With streaming in line to become the music business’ major form of distribution – itself a consolidation and elimination of traditional middle-men — this economic Darwinian survival of the fittest has conceivably created a music industry that is better prepared to act swiftly and efficiently in what has become a 24/7 on-demand content world. Though which company will emerge as a leader in the digital era remains to be seen.
Veteran record industry executive Phil Quartararo, who has witnessed the phenomenon first-hand during his years at Virgin, Warner Bros. and EMI, concurs. “Consolidation in music is cyclical,” he says. “The business is always more entrepreneurial and more adventurous when the cycle turns away from the big monoliths and is more receptive to music being started outside the system.”
As far as superstar artists are concerned, longtime music industry attorney Dina LaPolt (Britney Spears, Fifth Harmony) posits that the downside of consolidation is that it adversely affects both the talent and executives, with less competition lowering value across the board. “The only reason to sign to a major record label these days is marketing and promotion,” she says. “And that’s something you need more people for, not fewer.”
Only time will tell what the benefits and consequences will be once Disney and Fox combine their mighty assets into a global juggernaut in the new on-demand universe.