Warner/EMI merger gobbles eyeballs, shrinks ears
Commentary by Ken Yamada
Redherring.com
January 27, 2000
Remember when the Internet represented the promise of a freer, more liberated world of music distribution that would give rise to a wide variety of artists who didn't appeal to mass-market sensibilities? Well, Internet time is turning that notion on its head.
Witness the proposed merger of Time Warner (NYSE: TWX) and the EMI Group's (OTC: EMIPY) music operations. The deal is expected to create a global giant that controls one in four of this country's music sales and represents a further consolidation of power among a chosen few music companies.
To understand what's happening in the Internet music world, consider for a moment what's happening in the brick-and-mortar world of my hometown, El Cerrito, California.
In this San Francisco suburb, a dying and deserted shopping center is riding the current economic prosperity wave and has become hot property, attracting new stores and development dollars. But the center's tiniest and oldest merchants are angry over the influence wielded by the biggest and richest tenant, a giant supermarket chain, in determining who moves and who stays. The dry cleaners and children's shoe store now have little choice but to follow.
BRIDLED FREEDOM
The same thing is happening on the Internet. For all the talk about unbridled freedom, global communication and free commerce, some of the biggest corporations are vying to become the Web's superpowers, amassing what's fast becoming the currency of the 21st century -- content and eyeballs. The most blatant manifestation of this dynamic occurred earlier this month when America Online (NYSE: AOL) and Time Warner (NYSE: TWX) announced plans to merge in a $165 billion stock deal that will create an 800-pound gorilla that no one, except maybe government regulators, can tell where to sit.
That giant, ready to become the biggest beast in the jungle, will claim an increasing amount of Internet real estate and resources, beginning, it appears, with the music industry. The new Warner/EMI music company will become the world's largest music company with $8 billion in annual revenue and nearly 20,000 employees. It also will control a cache of pop artists that includes the Beatles, the Rolling Stones, the Doors, Madonna, the Eagles, Phil Collins, the Spice Girls, and Jewel.
The deal shrinks the ranks of top music distributors from five to four. Following Warner/EMI will be the Universal Music Group, Sony Music Entertainment (NYSE: SNE), and BMG Entertainment.
The Internet was supposed to give a voice to all those artists neglected by big music company execs. Singers and musicians would publish their creations directly on the Web, making them available directly to audiences for sale and downloading.
GROUPIE HEAVEN
Such visions fostered the rise of companies such as Rioport, Spinner.com, Musicmaker.com (Nasdaq: HITS), and Liquid Audio (Nasdaq: LQID). Now, many of these companies are jumping into bed with music industry old-timers faster than groupies after a Puff Daddy concert. For example, Liquid Audio formed an alliance with the Virgin Entertainment Group; Launch Media (Nasdaq: LAUN) is working with Time Warner, and Musicmaker.com is working with EMI. Sony invested in Spinner.com, which subsequently was acquired by AOL.
Those trying to go it alone are finding it very difficult. MP3.com (Nasdaq: MPPP), which offers free digital audio tracks by independent artists, is under fire from the Recording Industry Association of America. The company is also being sued by Sony, Time Warner, Elektra Entertainment, and others who claim MP3 violates copyrights in providing consumers access to digital copies of CDs.
Relief for independent Internet music companies is nowhere in sight. The market for downloadable music won't take off until high-speed broadband Internet access is widespread, which is predicted to take another three or four years, according to Forrester Research (Nasdaq: FORR). Subsequently, the market, which today generates less than $1 million annually, will jump to $1.1 billion within four years.
The combination of those growing sales, and fear of losing control over music distribution, is driving the big music distributors toward consolidation as big labels gobble up smaller labels and Internet music firms. You can argue that consolidation is good for one-stop shopping, but music lovers suffer when fewer voices decide which musical artists will be featured and sold, and which ones are pushed to the back shelves of cyberspace. |
