DIGITAL MUSIC NEWS

FTC, EC Approve Universal Music's Purchase of EMI

Months of uncertainty came to an end last week when regulatory agencies both in the U.S. and Europe approved Universal Music Group's $1.9 billion acquisition of EMI Music. The European Commission approved the deal with the proviso that UMG sell one-third of EMI's assets, which include Parlophone and other labels in Europe, as well as the rights to release music around the world by such EMI artists as Coldplay, David Guetta, and Pink Floyd. The Federal Trade Commission's approval came with with no added demands. "It's a historic day for UMG, and a historic day for EMI," Universal Chairman Lucian Grainge told the New York Times. "Inevitably I'm disappointed that we were not able to retain Parlophone. However, I can only remain focused on the opportunity and the achievement." Artists who are signed to labels to be sold will fall under the authority of a "hold separate manager" that will report to a trustee for the E.C. The sale process can take six to nine months, and potential buyers must have "a proven track record in the music industry," which would exclude private equity and other bidders. Universal must sell at least two-thirds of the EMI assets it must dispose of to a company that can serve as a credible competitor; those include Warner, Sony and BMG Rights Management, as well as various independents and industry entrepreneurs. [Full story: New York Times]

 

UMG's Grainge: Smartphones, Tablets Are Music Industry's Future   Following last week's approval of the Universal-EMI deal, UMG Chairman Lucian Grainge (left) said the merged company should benefit from the growth of smartphones and tablet computers as they expand into new territories. In an interview with the Financial Mail, he said the spread of Google's Android operating systems for touchscreen mobile phones and the growth in sales of tablet computers like the iPad would boost digital music sales. "The trends we are seeing alongside the spread of the latest technology, from tablet computers to the Android phones, make emerging markets increasingly attractive for digital music ," he explained. "We are looking at countries where there are consumers who are interested in international artists as well as local artists, like India, Brazil, Turkey, and Egypt. Music is at the heart of all this. Content is at the heart of it - the most important part. " While expressing his dismay at being forced to part with so much of EMI's assets, Grainge noted, "We've agreed to divest probably more than we would have preferred. Nevertheless, what we are divesting are assets that have great importance and great value, and we're confident that with our sales strategy and the number of people who have expressed interest, both in private equity as well as within the trade, that we'll be able to create exactly the level of value that we would expect to satisfy ourselves as well as our shareholders." [Full story: This Is Money   Chicago Tribune]

Bunzel To Radio: Be Aggressive With Digital To "Move The Needle"   "There's every indication that the traditional radio industry - while still being very strong - will continue to lose revenue to digital media." That's the word from radio industry analyst Reed Bunzel, president of Bunzel Media Strategies, who this week told All Access Music Group that radio stations need to shift their focus to find ways to augment their relatively static AM/FM revenue with strong digital revenue to provide the growth that they need. In a far-ranging interview, Bunzel said that digital advertising today delivers about 5% of radio's revenue, and it will take a lot more growth in that area to move the industry's overall needle upwards. "It's of paramount importance that the industry tries to get ahead of the curve on where digital is growing or, at the very least, not play catch-up," he said. "With all the audience we have as an industry, and because of our heritage, we have an immense marketing and promotional force within our audience base. We just need to collectively understand that it's not just listener cume and quarter-hours anymore. Rather, it is a connection to an immense populace that's fully engaged in digital - and we in radio have to find ways to leverage all of what we have." [Full story: All Access]

Pandora's Westergren Asks Users To Support Internet Fairness Act "An important piece of legislation has just been introduced in Congress that could end long-standing discrimination against Internet radio...[therefore] I'm asking that you contact your Senator to urge them to support [it]." That's the opening of a letter Pandora founder Tim Westergren (right) wrote to listeners, urging them to support the proposed Internet Radio Fairness Act, which would change the way the U.S. Copyright Royalty Board determines how much money internet radio services must pay music labels and artists. The proposed legislation, introduced by Reps. Jason Chaffetz (R-UT) and Jared Polis (D-CO) has the potential to become a rerun of Pandora's successful battle to lower the royalties it has to pay, a rate that in 2009 was set at an average of 2 cents per listener per hour of music streamed, or 25% of their gross revenue - whichever is greater. The proposed legislation would force the CRB to apply the same calculations to Internet radio as it does for satellite and cable radio. "If Pandora was not burdened with these punitive royalties, the company could introduce music services that could grow the industry and grow royalties," commented Villasenor, a senior fellow at the Brookings Institution, told the Los Angeles Times. "This will mean more music choices for consumers, a thriving Internet radio industry, and more royalties for musicians." [Full story: Forbes   L.A. Times]

Analyst: Pandora Should Just Run More Commercials   BTIG analyst Richard Greenfield, who has made no secret of his issues with Pandora's business model, was quick to criticize the Internet Radio Fairness Act as "crazy," noting that online music services wouldn't have profit problems if they just ran more commercials. "On the surface, the rates paid by Pandora and other online radio services appear onerous and in need of Congressional relief," he wrote in a research note. "However, the reason why companies such as Pandora pay such high royalty rates as a percentage of revenues is because they severely limit audio advertising to protect the user experience and keep people on the platform. If Pandora ran several minutes of audio ads per hour (the way terrestrial radio does) vs. just a few 15 second spots, the percentage of revenues paid out as royalties would be dramatically lower and would be more in line with satellite radio or cable TV. Interestingly, Spotify's radio product runs substantially more advertising per hour than Pandora. We suspect this is a business decision focused on reducing royalty costs relative to revenues." [Full story: Forbes]

Analysis: Spotify Listeners Twice as Likely To Buy A Download   According to an early assessment by NPD Group analyst Russ Crupnick, Spotify users are twice as likely to purchase a music download than non-users. "I can tell you that we see Spotify (I'm talking free) users more than twice as likely to be buying digital downloads compared to non-users, and that ratio has not changed since the introduction in Q3 '11," he said in a company statement. Specifically, 38% of Spotify users say they purchased a song download in the past three months, compared to 17% for non-users, while 36% of the tracks that Spotify users acquire are from paid download stores, a "reasonably steady" number. (The rest include CDs, borrowing and burning/ripping, using BitTorrent, etc.) Interestingly, the "hard numbers" - including those from Nielsen Soundscan - support the claim. As reported by Digital Music News (no connection to this publication), after suffering a sales plateau, paid downloads seem to be increasing as online streaming increases. Still, Crupnick cautions that broader trend analyses will take time to formulate. "Once we can trend an entire year of Spotify data it will be more accurate in terms of assessing the impact," he noted. [Full story: Digital Music News]

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