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The Record Industry and Competition Law in the Twenty-First Century

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The Record Industry and Competition Law in the Twenty-First Century THE RECORD INDUSTRY AND COMPETITION LAW IN THE TWENTY-FIRST CENTURY O. CHISCENCO PhD 2009 THE RECORD INDUSTRY AND COMPETITION LAW IN THE TWENTY-FIRST CENTURY OXANA CHISCENCO A thesis submitted in partial fulfillment of the requirements of the University of Westminster for the degree of Doctor of Philosophy September 2009 2 Abstract This research argues for recognition of the importance of cultural industries and cultural diversity and their special treatment by competition law. It uses the record industry as a tool to demonstrate how independent music labels contribute to diversity in a record business dominated by four major players. Whilst some scholars have advocated the inclusion of cultural issues under competition law, no concrete suggestions have been made as to how exactly to do that and no study has been made to determine what pitfalls may lay in doing so. This thesis deals with the lacuna by adopting a number of approaches and shows why cultural industries require special protection by competition law. The aforesaid is the unique feature of this thesis, which should help bridge the existing gap between theory and practice. In order to address the research question, a three-stranded methodological approach is utilised. Firstly, the historical analysis demonstrates the different competitive dynamics of the record industry since its inception, and it shows that musical diversity generally increased when the industry concentration was low. Secondly, the legal analysis focuses on the EU merger test and Article 81 of the EC Treaty; the US approach is also analysed for comparative purposes. Legal analysis examines how competition law has dealt with the regulation of competitive dynamics in the record industry, drawing analysis from a number of mergers and acquisitions, most notably the merger wrangling between Sony and BMG lasting for 5 years overall. Thirdly, qualitative interviews probe into why independent labels are important and what effect the recent mergers had on the independent sector. The main finding of this study is that cultural diversity can be incorporated into the EU merger test as well as Article 81(3) of the EC Treaty as a non-competition concern and therefore should be taken into account by decision-makers. 3 Acknowledgements I would like to thank my Director of Studies, Guy Osborn, for his excellent supervision over the past five years. Special thanks also to Jason Chuah who joined the supervisory team in my third year and really helped me shape the research in terms of competition law. I would also like to thank Lisa Webley for providing me with invaluable advice regarding the methodological approach. Thanks to Anjali Perin and Haydn Bendall for proof reading this work. 4 I declare that all the material contained in this thesis is my own work 5 Table of Contents INTRODUCTION ............................................................................................. 10 CHAPTER 1: INTRODUCTION: ORIENTATION AND CONTEXT ............... 17 1.1. Cultural Industries: Definition and Significance........................................................................ 17 1.2. Cultural Products........................................................................................................................ 21 1.3. The (Im)perfect Markets of Cultural Industries ......................................................................... 24 1.4. Always Mass Consumption?...................................................................................................... 25 1.5. Globalisation and Glocalisation ................................................................................................. 28 1.6. The Long Tail............................................................................................................................. 30 1.7. Cultural Diversity: Definition, Measurement and Its Relation to Concentration ...................... 32 1.8. Regulation of Cultural Industries: Competition Law, De-regulation and Self-Regulation ....... 43 1.9. The Importance of Small Business in Cultural Industries ......................................................... 51 1.10. Limitation of the Study ............................................................................................................ 53 CHAPTER 2: METHODOLOGY...................................................................... 54 2.1. Description and Rationale .......................................................................................................... 54 2.2. Statement of the Problem ........................................................................................................... 54 2.3. Definitions of the Main Concepts .............................................................................................. 55 2.4. Research Strategy & Theoretical Framework ............................................................................ 56 2.4.1. Legal Study ............................................................................................................................. 58 2.4.2. Historical Study....................................................................................................................... 61 2.4.3. Qualitative Interviews ............................................................................................................. 62 2.5. Data Analysis ............................................................................................................................. 70 2.5.1. Legal Study ............................................................................................................................. 70 2.5.2. Historical Study....................................................................................................................... 71 2.5.3. Interviews................................................................................................................................ 71 2.6. Additional Sources ..................................................................................................................... 72 CHAPTER 3: HISTORY OF COMPETITIVE DYNAMICS AND GROWTH IN THE RECORD INDUSTRY: DIVERSITY OF PRODUCERS........................... 74 3.1. Cyclical Nature and Competition Patterns of the Record Industry............................................ 74 3.1.1. Invention of the Phonograph and the Gramophone (1877 – 1909)......................................... 75 3.1.2. Creation of the Record Industry - The Stage of Low Concentration (1910 – 1928) .............. 76 3.1.3. Recession - The Stage of High Concentration (1929 - 1939) ................................................. 77 3.1.4. Revival in the US, Recession in the UK during the World War II – The Stage of Corporate Concentration (1940 – 1949) ............................................................................................................ 79 3.1.5. The Arrival of Independents and New Music Genres – The Stage of Low Concentration (1950 – 1959) .................................................................................................................................... 81 6 3.1.6. The Arrival of Beatlemania - The Stages of Secondary Consolidation, Renewed Growth and Re-Concentration (1960 – 1978)....................................................................................................... 83 3.1.7. Recession– The Stage of Low Concentration (1979 - 1984) .................................................. 84 3.1.8. Revival – The Stage of High Concentration (1984 - 1999) .................................................... 85 3.1.9. Recession - Digital Revolution: The Stage of Higher Consolidation (2000 - onwards)......... 86 3.2. Majors and Independents ........................................................................................................... 90 3.2.1. Characteristics of Major Record Companies: Evolution of the Record Industry Oligopoly . 91 1) Universal Music Group............................................................................................................ 91 2) Sony Music Entertainment....................................................................................................... 93 3) Warner Music Group ............................................................................................................... 94 4) Electric & Musical Industries .................................................................................................. 95 3.2.2. Characteristics of Independent Music Labels ......................................................................... 96 3.2.2.A. Independent Record Labels: A Wide Spectrum of Structures ............................................ 98 3.3. Differences in Approaches between Majors and Independents ............................................... 102 3.4. The Blurring of Independent Labels: The Reasons for Selling Out......................................... 111 3.5. The Justification of Why Competition Law Should Protect Producer Diversity..................... 113 3.5.1. Cultural and Economic Importance of Small and Medium-Sized Producers in Cultural Industries ......................................................................................................................................... 113 CHAPTER 4: THE RATIONALE BEHIND MERGERS AND ACQUISITIONS AND RESULTANT ANTI-COMPETITIVE BEHAVIOUR ............................. 119 4.1. Reasons for Mergers and Acquisitions in the Record Industry................................................ 121
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