S. HRG. 112–550 THE UNIVERSAL MUSIC GROUP/EMI MERGER AND THE FUTURE OF ONLINE MUSIC HEARING BEFORE THE SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS OF THE COMMITTEE ON THE JUDICIARY UNITED STATES SENATE ONE HUNDRED TWELFTH CONGRESS SECOND SESSION JUNE 21, 2012 Serial No. J–112–83 Printed for the use of the Committee on the Judiciary ( U.S. GOVERNMENT PRINTING OFFICE 76–045 WASHINGTON : 2012 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 COMMITTEE ON THE JUDICIARY PATRICK J. LEAHY, Vermont, Chairman HERB KOHL, Wisconsin CHUCK GRASSLEY, Iowa DIANNE FEINSTEIN, California ORRIN G. HATCH, Utah CHUCK SCHUMER, New York JON KYL, Arizona DICK DURBIN, Illinois JEFF SESSIONS, Alabama SHELDON WHITEHOUSE, Rhode Island LINDSEY GRAHAM, South Carolina AMY KLOBUCHAR, Minnesota JOHN CORNYN, Texas AL FRANKEN, Minnesota MICHAEL S. LEE, Utah CHRISTOPHER A. COONS, Delaware TOM COBURN, Oklahoma RICHARD BLUMENTHAL, Connecticut BRUCE A. COHEN, Chief Counsel and Staff Director KOLAN DAVIS, Republican Chief Counsel and Staff Director SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS HERB KOHL, Wisconsin, Chairman CHUCK SCHUMER, New York MICHAEL S. LEE, Utah AMY KLOBUCHAR, Minnesota CHUCK GRASSLEY, Iowa AL FRANKEN, Minnesota JOHN CORNYN, Texas RICHARD BLUMENTHAL, Connecticut CAROLINE HOLLAND, Democratic Chief Counsel/Staff Director DAVID BARLOW, Republican General Counsel (II) C O N T E N T S STATEMENTS OF COMMITTEE MEMBERS Page Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin ............................ 1 Leahy, Hon. Patrick, a U.S. Senator from the State of Vermont, prepared statement .............................................................................................................. 151 Lee, Hon. Michael, a U.S. Senator from the State of Utah .................................. 2 WITNESSES Azoff, Irving, Executive Chairman and Chairman of the Board, Live Nation Entertainment, Inc., and Chairman and Chief Exective Officer, Front Line Management Group, Los Ageles, California ...................................................... 8 Bronfman, Edgar, Jr., Director, Warner Music Group Corp., New York, New York ....................................................................................................................... 10 Faxon, Roger C., Chief Executive, EMI Group, New York, New York ................ 6 Grainge, Lucian, CBE, Chairman and Chief Executive Officer, Universal Music Group, Santa Monica, California ............................................................. 5 Mills, Martin, Founder, Beggars Group, London, United Kingdom .................... 12 Sohn, Gigi, President, Public Knowledge, Washington, DC., on behalf of Pub- lic knowledge and Consumer Federation of America ........................................ 13 QUESTIONS AND ANSWERS Responses of Lrving L. Azoff to questions submitted by Senators Kohl and Lee ......................................................................................................................... 39 Responses of Edgar Bronfman, Jr. to questions submitted by Senators Klobuchar, Kohl and Lee ..................................................................................... 45 Responses of Roger C. Faxon to questions submitted by Senators Klobuchar, Kohl and Lee ........................................................................................................ 59 Responses of Lucian Grainge to questions submitted by Senators Klobuchar, Kohl and Lee ........................................................................................................ 65 Responses of Martin Mills to questions submitted by Senators Kohl and Lee ......................................................................................................................... 79 Responses of Gigi Sohn to questions submitted by Senators Kohl and Lee ....... 84 SUBMISSIONS FOR THE RECORD American Antitrust Institute (AAI), Hunt Valley, Maryland, statement ........... 90 Azoff, Irving, Executive Chairman and Chairman of the Board, Live Nation Entertainment, Inc., and Chairman and Chief Exective Officer, Front Line Management Group, Los Ageles, California, statement ................................... 104 Bronfman, Edgar, Jr., Director, Warner Music Group Corp., New York, New York, statement .................................................................................................... 109 Buchanah, Jay, Rival Sons, vocals; Scott Holiday, Rival Sons, guitar; Robin Everhart, Rival Sons, bass; Michael Miley, Rival Sons, drums, Los Angeles, California, June 14, 2012, joint letter ................................................................ 123 Cronin, Kevin, REO Speedwagon, June 15, 2012, letter ...................................... 124 Faxon, Roger C., Chief Executive, EMI Group, New York, New York ................ 125 Forbes.com, Geoffrey Manne and Berin Szoka, joint statement .......................... 134 Grainge, Lucian, CBE, Chairman and Chief Executive Officer, Universal Music Group, Santa Monica, California ............................................................. 137 International Federation of Musicians (fim), Benoit Machuel, General Sec- retary, Paris, France, June 14, 2012, letter ....................................................... 149 Jones, Jeff, Apple, June 20, 2012 letter ................................................................. 150 (III) IV Page Madden, Benji, Good Charlotte, and Joel Madden, Good Charlotte, June 11, 2012, joint letter ................................................................................................... 152 Mann, Chris, June 19, 2012, letter ........................................................................ 153 Merlin, Charles Caldas, CEO, June 19, 2012, letter and attachment ................ 154 Mills, Martin, Founder, Beggars Group, London, United Kingdom, statement and supplemental statement ............................................................................... 158 Rae, Casey, Deputy Director, Future of Music Coalition, Washington, DC, statement .............................................................................................................. 185 Sohn, Gigi, President, Public Knowledge, Washington, DC., on behalf of Pub- lic knowledge and Consumer Federation of America, statement ..................... 190 THE UNIVERSAL MUSIC GROUP/EMI MERGER AND THE FUTURE OF ONLINE MUSIC THURSDAY, JUNE 21, 2012 U.S. SENATE, SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY, AND CONSUMER RIGHTS, COMMITTEE ON THE JUDICIARY, Washington, DC. The subcommittee met, pursuant to notice, at 2:18 p.m., in room SD–226, Dirksen Senate Office Building, Hon. Herb Kohl, Chair- man of the Subcommittee, presiding. Present: Senators Kohl, Klobuchar, Franken, Blumenthal, and Lee. OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE STATE OF WISCONSIN Chairman KOHL. Good afternoon. Sorry to be a little late this afternoon. We had some votes to complete. In recent years, the music industry has undergone a radical transformation as consumers embrace new digital music tech- nologies. The transformation is as revolutionary today as the Gramophone, radio, and recorded music were a century ago. The deal before us today is just one example of this trans- formation. EMI is being sold in two parts—to Universal and to Sony—so that there will only be three major record companies re- maining. Today we meet to consider the sale of EMI’s recorded music business to Universal and its impact on competition, artists, and consumers. As recently as 20 years ago, virtually all consumers obtained their music by going to their local record stores to buy records or CDs, often after hearing the music on the radio. Today the market is very different. About half of all music revenue comes from digital sales over the Internet, from downloading songs and albums via iTunes, or listening to an online music subscription service such as Spotify, to give only two examples. Recording artists can reach consumers directly over the Internet without ever signing a deal with a record company. Most record stores have closed as a result of the new online services. For those consumers who still buy physical CDs, they do so primarily at large chains such as WalMart or Target or by ordering over the Internet on a website like Amazon. And the music industry faces ongoing challenges from illegal downloading of music over the Internet. In this brave, new world for the music industry, Universal and EMI argue that this deal should not concern us. They contend that (1) 2 the market shares resulting from the merger should not concern us and that the power to set prices is in the hands of online distribu- tors or the large chain retailers with whom they must deal. And the ongoing problem of piracy, they argue, effectively constrains their ability to raise prices when consumers can easily get music for free via illegal downloads. Nonetheless, we need to closely examine whether reducing the number of major record companies to three and giving Universal as much as 40 percent of the music business by some measures will adversely affect competition. Concerns are especially strong with respect to the market for online distribution. Will Universal’s music catalogue be so large as to make it a gatekeeper that can make or break any new online service and allow it to prevent new competi-