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Universal Music, EMI Defend Planned Merger

WASHINGTON--Lawmakers on Wednesday questioned the chief executives of Universal Music Group and EMI Music about their planned merger, expressing concern the new company would use its growing control of U.S. market share to squeeze out competitors. Universal's $1.9 billion bid to acquire EMI, whose clients include Katy Perry and Coldplay, is currently being reviewed by the Federal Trade Commission and the European Commission. If the merger goes through as proposed, Universal would control 40% of market share in the U.S. Although the merger ostensibly would reduce the number of major record companies from four to three, smaller companies charge that market share would actually be dominated by only two groups: Universal/EMI and Sony Music, which controls 29% of U.S. market share. Warner Music Group would follow with 19% control of market share. Edgar Bronfman, Jr., Warner's director, told a Senate antitrust subcommittee that the proposed merger could potentially prevent the next great innovation like iTunes, as Universal/EMI would have the market power to "prevent any new service it perceives as disruptive from launching successfully." Universal Chief Executive Lucian Grainge rejected the notion that the post-merger company would stifle new start-ups. "The thought that we would constrict our artists who we've invested in and constrict the investment that we make in EMI to dissolve the market would be commercial suicide," he said. But lawmakers suggested Universal has done exactly that. Deezer, a Web-based music streaming service, hasn't been able to launch in the U.S. because of Universal's reluctance, said Sen. Al Franken (D., Minn.). Mr. Grainge said he was "not aware of the Deezer specifics." But even when Universal does work with new digital startups, the record company requires them to give Universal a piece of their equity. Although that's common practice for major labels, Mr. Franken worried that the merger would exacerbate the problem. "I worry that if your market share swells to 40% you will have every incentive to demand more equity, a larger cut of ad revenues," Mr. Franken said. Competitors and consumer advocates also heaped criticism on the pending deal, saying Universal would use market power to raise prices and stifle innovation. Gigi B. Sohn, president of Public Knowledge and Consumer Federation of America, said a post-merger Universal would control 68 of the Billboard Hot 100 titles for 2011. "As a result, consumers must either miss out on potential new services or pay excessive fees for those services," Ms. Sohn said. Martin Mills, chief executive of independent music group Beggars Group, added that the merger would give Universal an unfair advantage in signing artists and gaining access to distribution, retail and media. Opponents of the merger compared it to the failed AT&T/T-Mobile merger, which raised concerns about a duopoly market. Had the deal gone through, the combined company would have controlled 42% of the wireless revenue in the U.S., Mr. Bronfman said. Congress does not play a role in the regulatory process. The European Commission is expected to rule on the bid by Universal and its French owner, Vivendi SA, by Sept. 6.

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