By Shane McGinley
Two mega music deals - led by Middle Eastern investors - may see the face of music change completely. But what will be the impact for the business, for artists and the fans?
UK-based group One Direction last month made music history when their album debuted at number one on the US Billboard chart. Selling 176,000 copies in its first week, they were crowned as the first UK group in the history of music to debut at number one in the US with their first album.
Looking at the band’s pedigree, it consists of five teenage boys who individually auditioned for pop svengali Simon Cowell’s UK reality music show The X Factor. While they were not deemed talented enough to make it as solo singers, the show organisers decided to package the five strangers together, give them a new name and a new makeover, and re-enter them as a group.
While they did not win the 2010 show, Cowell signed them to his personal label, Syco Records, got them a deal with Columbia Records - part of Sony Music Entertainment in the US - paid some Scandinavian songwriters to pen them a catchy hit, and promptly unleashed them on the Twitterverse.
Within a matter of months, teenage girls had a new crush to scream at, social media had new icons, the US and UK had a parent-friendly band and Cowell and Co are now reaping the rewards.
Some music lovers have described the episode as the death knell of the modern-day music artistry. Others, however, claim little has changed and that One Direction are simply the new manufactured face of a production line that goes back as far as The Monkees in the 1960s.
While the likes of Simon Cowell and reality shows The X Factor and American Idol have been blamed — alongside social media and digital downloads - as the causes for the decline in modern music, it is true that the state of industry is now set to change. Right now, there are two very powerful and influential forces involved the crafting the future of the sector: Qatar and Abu Dhabi.
The European Commission is currently investigating whether Universal Music, the world’s largest record company, will be allowed to buy its UK-based rival EMI’s recorded music unit for $1.9bn.
Critics claim the move will reduce competition in the market by creating the world’s largest music provider. While the investigation is ongoing, it is no wonder that Qatar Holding, the Gulf state’s sovereign wealth fund, this year increased its stake in Vivendi, Universal Music’s Paris-based parent company to two percent, valuing its stake at around 354m ($468.81m).
Should the deal go ahead, it would mean that every time a song by Abba, Bob Marley, Bon Jovi, Coldplay, Eminem, George Michael, Mariah Carey, Queen or Rihanna (and hundreds more) is played - some of the cash will make its way back to Doha.
The EU says it is concerned about the combined entity’s high market share, almost twice the size of its nearest rival in Europe.
“The commission needs to make sure that consumers continue to have access to a wide variety of music in different physical and digital formats at competitive conditions,” says EU Competition Commissioner Joaquin Almunia.
The European Commission has said it will decide by 8 August whether to clear or block the deal. For its part, Universal said it had always expected the Commission to carry out an in-depth investigation. “We will continue to co-operate fully with them and look forward to a successful resolution of the process,” it said in a statement.
According to a Reuters source, Universal decided not to offer concessions to the EU watchdog during its preliminary assessment of the deal, but would consider doing so in the second phase of the investigations.
EMI owner Citigroup took control of the record label, whose artists have included the Beatles, Queen, Coldplay and Katy Perry, after its previous owner Guy Hands’ buyout shop Terra Firma defaulted on loans owed to the investment bank.
While Universal is gearing up to buy EMI’s recording business, a Sony Music Group-led plan to acquire EMI’s music publishing business for $2.2bn is also seeking approval from the EU. Partners in the Sony deal are LA-based music billionaire David Geffen - who produced hits for Elton John, Cher, Aerosmith, Guns N’ Roses and Nirvana - and Mubadala, Abu Dhabi’s investment and development company.
“The proposed acquisition of EMI Music publishing by Sony and an investor group including Mubadala has been notified to the European Commission. The parties will continue to engage constructively with the Commission and are confident that the transaction will be approved,” a Mubadala spokesperson told Arabian Business in a statement.
The $2.2bn deal, if granted approval, will create the world’s second-biggest music catalogue. Sony Music Entertainment had about 28 percent of the US album market in 2010, according to Nielsen Soundscan, putting it in second place behind Vivendi’s Universal Music Group, while EMI had ten percent.
So what will this mean for the future of music to have two mega-rich states having such influence and power over the industry?
“It would create in effect a bigger duopoly between Universal and Sony, who would control music publishing and music recording worldwide. Neither their much smaller nearest market rival [Warner Music] nor the independents who are fragmented, would be able to provide effective competition,” says Helen Smith, executive chair of the Independent Music Companies Association (Impala), a lobbying group for independent music companies which has urged EU regulators to block both deals.
Despite her objections that the two mega deals will lead be bad for musical creativity, Smith acknowledges that it makes perfect business sense for Abu Dhabi and Qatar to invest at this point.
“I would expect it is astute business thinking as the overall impression is that music is not currently a good business to invest in, yet the underlying trends are predicting a turnaround within one to two years, with new markets opening up, more online services being set up and governments adapting legislation to allow them to develop.
“The online music market is far more secure than it ever has been, which would represent a good investment case,” she says.
Smith is also concerned that the reduction of competition will lead to prices increasing for consumers as a smaller circle of customers.
“The risk of higher prices makes regulators nervous and they are having serious doubts as to whether this level of consolidation is acceptable,” she says. “That is what the commission is worried about and investors are attracted by the certainty that more people will pay for music and the additional possibility to increase prices would no doubt contribute to the investment case.”
The price of CDs in the Middle East is already too high, Nisreen Shocair, president of Virgin Megastore Middle East, one of the largest music retailers in the region, told Arabian Business last year.
“It is an ongoing issue… Why are CDs so expensive? It is not from me, I am the biggest advocate of price changes. When their contracts come up for renewal they are going to have to sit with the studios and record labels and say times have changed,” she said.
Times are changing, but the power is now moving back towards the record labels and if Universal and Sony are the ones holding all the cards how much bargaining power will the retailers have?
“I would agree [it is a concern],” says Saeed El Ajou, managing director of Dubai-based record distributor Music Master. “It will be an interesting point.”
But El Ajou says it would ultimately depend on how the split of EMI is handled and whether the Universal and Sony continue to operate separately. The alternative would be to allow the firm to continue to operate as a whole entity.
One area to look at, should the Mubadala-backed Sony deal go ahead, is the collection of publishing royalties in the UAE. At present, El Ajou says there is no real mechanism in place to collect the royalties owed to publishers for music played in the UAE or Middle East.
If government-backed Mubadala were to become part of one of the largest publishing firms in the world, this would surely spur the UAE government to fast-track the launch of a royalties collection agency. Therefore, any radio station or music venue playing public music would have regular fees to pay if they want to continue to play the latest and greatest hits.
But surely this extra cost for clubs, DJs and bars would eventually trickle down to the consumer in some form?
“That could be one way to look at it and it could be leverage to start,” says El Ajou, but he acknowledges that “an independent body to collect on behalf of [publishers] is a long way off.”
So what about artists? A questionnaire sent to the European Commission and seen by Reuters asked whether artists would be able to switch record labels easily and at a reasonable cost once the two deals were completed.
Would this be the death of big-money multi-million-dollar deals artists’ agents can negotiate from the labels? When labels disagree with the direction of their music, artists won’t be able to go to the nearest competitor, as the number of potential rivals will have shrunk.
“The impact of these mergers on artists is significant as their power will be reduced. From an investment perspective Universal and Sony will get free pick of the artists and they get to reap the benefits as there will be no competition as they are bigger,” says Smith.
“It is damaging and not in the public interest to reduce career options for musicians and others involved in the business who would like to make a living and write great hits. The public will end up with less choice,” she adds.
However, El Ajou points out that the modern music scene is very different, thanks to the ability to promote your music online through social media and sell it through downloads.
“You have to factor in the social media,” he says. “It has been powerful [for artists] in promoting themselves external of the record companies. Arctic Monkeys were one of the major artists to do that.”
The consensus among those in the industry seems to be that the Sony/EMI publishing deal is likely to get the green light in the end, but that the outlook for the Universal/EMI recording contract is more uncertain.
“I think that the fact EMI has been broken up into EMI Music and EMI Publishing means it has a better chance of being passed than if it was a single entity. I think there are enough big publishers out there that it will be passed. The EMI/Universal deal I think will be a harder one to pass,” says El Ajou.
Should the deals go ahead, El Ajou also worries about the future of Warner Music Group, which would be the third biggest player in the market. “Warner will be the smaller one and there will be questions about whether they will be able to survive on their own. I personally don’t think so,” he says.
I also put it to Smith that the independent film industry has managed to survive the advent of the Hollywood blockbuster and compete side by side. For every One Direction why can’t you also have an Adele?
“A lot of independent film production is subsidised, particularly in Europe, so they can compete with Hollywood, but in independent music you don’t have that,” she points out.
“The question is whether it will be able to provide effective competition to the majors and if you don’t do that then you reduce the ability of artists to have a career, unless they are signed to Universal or Sony. They will find it more difficult to make a living, to get the best radio or TV slots, or get into the charts, or headline festivals, or make it onto the covers of magazines. It would basically mean you would have two companies deciding which artists are suitable for our children to listen to tomorrow and that is not the kind of message the regulators want to give,” she adds.
Either way, a decision is due from the EU in August and executives in offices in Doha and Abu Dhabi will be looking at the outcome eagerly. The success of the deals will mean the future of music will rest in their hands.
EMI Record Company Artists:
• A Bobby Darin • Judy Garland • Dean Martin • Liza Minnelli • Cliff Richard • Frank Sinatra • The Beach Boys • The Beatles • Pink Floyd • Joe Cocker • Lily Allen • Barenaked • Beastie Boys • David Bowie • Garth Brooks • Kate Bush • Coldplay • Elvis Costello • Daft Punk • The Dandy Warhols • Duran Duran • Fatboy Slim • Iron Maiden • Janet Jackson • John Lennon • Kylie Minogue • Katy Perry • Queen • Diana Ross • Spice Girls • Tina Turner • The Verve • The White Stripes •
Sony Music Entertainment Artists:
• AC/DC • Aerosmith • Alicia Keys • Anastacia • Avril Lavigne • Backstreet Boys • Barbra Streisand • Beyoncé Knowles • Billy Joel • Bob Dylan • Boney M. • Britney Spears • Bruce Springsteen • Celine Dion • Christina Aguilera • Cyndi Lauper • Duran Duran • Destiny's Child • Foo Fighters • Gloria Estefan • INXS • Iron Maiden • Jennifer Lopez • Jessica Simpson • Johnny Cash • Kings of Leon • Leona Lewis • Mariah Carey • Michael Jackson • Natasha Bedingfield • New Kids On The Block • Ozzy Osbourne • Pearl Jam • Pink • Pink Floyd • Santana • Shakira • Simon and Garfunkel • Spandau Ballet • Stevie Wonder • Sugababes • Susan Boyle • Usher • Westlife • Wes Carr • Wham! • Whitney Houston • Will Smith •
Universal Group Artists:
• Aerosmith • Andrea Bocelli • The Beatles • Backstreet Boys • Björk • The Black Eyed Peas • Bob Marley • Bon Jovi • Bryan Adams • The Cranberries • Celine Dion • Coldplay • Duran Duran • Enrique Iglesias • George Michael • Guns N' Roses • Gwen Stefani • Jennifer Lopez • Justin Bieber • Kanye West • Lady Gaga • Madonna • Mariah Carey • Marilyn Manson • • Pussycat Dolls • Rihanna • Robbie Williams • Shania Twain • Stevie Wonder •For all the latest art news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.