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76–045 2012

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 

( 
(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

CHUCK SCHUMER, New York 

DICK DURBIN, Illinois 

SHELDON WHITEHOUSE, Rhode Island 

AMY KLOBUCHAR, Minnesota 

AL FRANKEN, Minnesota 

CHRISTOPHER A. COONS, Delaware 

RICHARD BLUMENTHAL, Connecticut 

CHUCK GRASSLEY, Iowa 

ORRIN G. HATCH, Utah 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

MICHAEL S. LEE, Utah 

TOM COBURN, Oklahoma 

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 

AMY KLOBUCHAR, Minnesota 

AL FRANKEN, Minnesota 

RICHARD BLUMENTHAL, Connecticut 

MICHAEL S. LEE, Utah 

CHUCK GRASSLEY, Iowa 

JOHN CORNYN, Texas 

CAROLINE HOLLAND, Democratic Chief Counsel/Staff Director 

DAVID BARLOW, Republican General Counsel 
(III) 

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 Public 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 Secretary, Paris, France, June 14, 2012, letter ....................................................... 149 

Jones, Jeff, Apple, June 20, 2012 letter ................................................................. 150 
Page

IV 

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 Public knowledge and Consumer Federation of America, statement ..................... 190 
(1) 

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, Chairman 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 technologies. 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 transformation. EMI is being sold in two parts—to Universal and to 

Sony—so that there will only be three major record companies remaining. 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 
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 distributors 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 competitively priced services from launching? 

We must carefully scrutinize what this merger will mean for consumers who buy music on physical CDs, still half of all music sales 

revenue. In almost all industries, reducing the number of competitors from four to three expands the market power of the remaining 

companies and increases the risk of higher prices. Why shouldn’t 

these same principles apply to the music business? Moreover, will 

the three remaining record companies be able to obtain the lion’s 

share of floor space and promotions in retail stores, thereby crowding out the smaller competitors? 

We must be mindful of the possible harmful effects on independent labels and artists. As in so many creative industries, innovation and new forms of music often come from those artists not 

signed to major record companies. We need to be careful to ensure 

that this consolidation does not impede the ability of independent 

record labels to compete or place undue barriers to the emergence 

of new, innovative, and diverse talent in the music industry. 

So our examination of this transaction leaves us with more questions than answers as we begin today’s hearing. While we recognize 

that the music industry has gone through enormous changes and 

challenges in recent years, nevertheless we are mindful of the basic 

principles of antitrust and the need to maintain competition in this 

industry for both consumers and artists. 

We look forward to the testimony of our panel of witnesses on 

these issues, and we are very pleased to be with you today. 

Senator Lee, any comments? 

STATEMENT OF HON. MIKE LEE, A U.S. SENATOR FROM THE 

STATE OF UTAH 

Senator LEE. Yes, thank you, Mr. Chairman. Thanks to all of you 

for joining us today. 

The recorded music industry is both a staple of our popular culture and an essential element for our economy. The 40,000 businesses involved in the United States music industry employ over 

100,000 people, including artists, managers, technicians, and 

record label staff. And music can be big business. Estimated revenues for the sale of recorded music in America now exceed $7 billion each year. 

The music industry is also changing rapidly. Last year, digital 

sales surpassed physical sales for the first time in history. Online 

retail and digital distribution services provide customers with un-
3 

precedented access to lesser known artists who might otherwise 

have been unable to obtain a recording contract. Digitization has 

opened the door to a new and diverse world of innovative platforms 

and modes of competition. 

But the rise of digital music has also made illegal pirated recordings readily accessible to anyone with a computer who has an 

Internet connection. The future of online music is bright but uncertain. Although Internet-based radio and other music services are 

growing at an impressive pace, some suggest that the Copyright 

Royalty Board’s rate-setting process is broken and should be reformed. Whatever the nature of any such reforms, enforcement of 

our antitrust laws must be oriented to help foster innovative technologies and enhance consumer welfare. 

As the music industry attempts to traverse a changing technological and competitive landscape, some consolidation may, of 

course, be expected. It, therefore, came as little surprise when Universal Music Group announced its intention to acquire EMI’s 

record label. This announcement followed the 2007 transfer of EMI, 

which has suffered from sharply declining market share and enormous debt, to a private equity firm and eventually to Citigroup. 

Many industry observers welcome the prospect of Universal taking full advantage of EMI’s artists and catalogue, helping to revise 

an industry in the midst of some decline. Universal’s productive 

use of EMI’s assets promises efficiencies that an equity firm or a 

bank is unlikely to achieve. 

At the same time, some competitors and public interest groups 

note that a Universal/EMI merger would reduce the number of 

major labels from four to three and give Universal a larger market 

share than either of the remaining majors. 

Critics fear that a combined Universal/EMI could leverage its 

market power to increase prices to retailers and to consumers. 

Some worry that the combined company may stifle innovation in 

emerging digital distribution models by refusing to license its catalogue to inventive services. 

Others also fear that a dominant label might seek to exclude 

competitors from accessing key promotional space in retail and digital distribution services. 

These concerns underscore the complex, evolving nature of the 

music industry and the need for careful analysis of the relevant 

markets and the manner in which market power might be exercised. I am hopeful that this hearing will provide insight into the 

competitive landscape of the recorded music industry. 

Mergers play an essential role in our economy and should be permitted where they do not harm consumers. Mergers can bring to 

bear superior managerial skills, allow for more productive use of 

underutilized assets, and result in economies of scale, reduced 

costs, improved quality, and increased output. 

The potential for mergers generally provides positive incentives 

for industry managers who recognize a need to maximize profits or 

face consolidation. Likewise, innovators know there is an acquisition market for the businesses that they create. 

Under most definitions of the relevant markets, this merger will 

result in a significant degree of concentration. As the merger guidelines make clear, however, this is not the end of the analysis, and 
4 

the merger may proceed where other competitive factors counteract 

the potentially harmful effects of increased concentration. 

Universal and other proponents of the merger assert that there 

is reason to believe such competitive factors are present in the various markets for recorded music. Music retailers wield tremendous 

market power, with Apple and WalMart alone accounting for up to 

60 percent of sales. This countervailing market power may well 

protect against labels’ successfully raising marginal prices. 

The nature of the modern music industry may provide an additional protection against anticompetitive effects. The prevalence 

and affordability of technology has increased the ease and entry 

quite substantially, resulting in greater access and an increased variety of access points, whether YouTube, MySpace, or iTunes, for 

artists and for independent labels. In fact, independent labels now 

account for approximately 30 percent of music ownership. 

Finally, at least at present, we cannot ignore the effect of pirated 

music. The threat and the prevalence of piracy surely impact decisionmaking throughout the legitimate recorded music industry and, 

therefore, must be considered as part of any comprehensive antitrust analysis. 

Government regulators should be wary of intervening in rapidly 

changing and innovative markets. The music industry has experienced much turmoil as it struggled to adjust to changes in technology, pricing models, and consumer expectations. Gone are the 

days when consumers bought entire albums in order to acquire just 

a single song. Also gone are the days when consumers purchased 

the same album a second time simply to update their libraries to 

the latest format. Today record labels and the artists they represent have their work stolen and shared freely over the Internet. 

Every year consumers demand more music for less money. As the 

music industry grapples with these and other challenges, Government regulators ought to be careful not to prohibit reasonable business judgments and decisions that may lead to efficiencies and productive solutions. 

I look forward to hearing the testimony today, and I thank the 

witnesses for coming. 

Chairman KOHL. Thank you, Senator Lee. 

Now I would like to introduce our panel of witnesses. First to testify will be Lucian Grainge, who is chairman and CEO of Universal 

Music Group since 2011. 

Next we will be hearing from Roger Faxon, who serves as the 

CEO of EMI Group and first joined that company in 1994. 

Our third witness will be Irving Azoff, executive chairman and 

chairman of the board of Live Nation Entertainment, and chairman 

and CEO of Front Line Management Group. 

Next we will be hearing from Edgar Bronfman, Jr., director and 

former chairman of Warner Music Group and former executive vice 

chairman of Vivendi/Universal. 

Next we will be hearing from Martin Mills, founder and chairman of Beggars Group, who has served as vice chairman of the Association of Independent Music. 

Finally, we will be hearing from Gigi Sohn, president and CEO 

of Public Knowledge and a member of the Advisory Board of the 

Future of Music Coalition. 
5 

We thank you all for appearing at our Subcommittee hearing 

today. I ask all of you now to rise and raise your right hand as I 

administer the oath. Do you affirm that the testimony you are 

about to give before this Committee will be the truth, the whole 

truth, and nothing but the truth, so help you God? 

Mr. GRAINGE. I do. 

Mr. FAXON. I do. 

Mr. AZOFF. I do. 

Mr. BRONFMAN. I do. 

Mr. MILLS. I do. 

Ms. SOHN. I do. 

Chairman KOHL. Thank you very much. 

We will start now with you, Mr. Grainge, and we are looking forward to your statement. We request that your statement be limited 

to 5 minutes. Mr. Grainge. 

STATEMENT OF LUCIAN GRAINGE, CBE, CHAIRMAN AND 

CHIEF EXECUTIVE OFFICER, UNIVERSAL MUSIC GROUP, 

SANTA MONICA, CALIFORNIA 

Mr. GRAINGE. Thank you. Good afternoon, Chairman Kohl, Ranking Member Lee, and members of the Subcommittee. My name is 

Lucian Grainge, and I am the chairman and chief executive of Universal Music Group. It is an honor for me to be here today, and 

I welcome the opportunity to discuss both the issues affecting the 

music industry at large together with our proposed acquisition of 

EMI’s recorded music business. 

I count myself lucky to have spent my entire professional life in 

and around music. Music connects us, and it inspires us. I started 

in the music industry 33 years ago as a talent scout. I was a talent 

scout then, and I am a talent scout now. 

As well as continuing to identify great artists, I also scout for 

writers, producers, creative executives, startups, entrepreneurs, 

and digital platforms. 

The music business is reinventing itself on a daily basis, and this 

reinvention has not always been kind to us. The industry is half 

the size it was in 2001, and I am sure that Roger, Edgar, Irving, 

and Martin will agree that we have all managed our business 

through a very difficult decade. So it is invigorating to talk about 

the future this afternoon, to talk about the potential for growth, 

the commitment to digital expansion, and a fresh, positive energy. 

The mere concept that we can discuss growth is not something 

we have been able to do for a long time. I believe that Universal’s 

proposed acquisition of EMI sits at the heart of this positive move 

forward. Roger Faxon has done a remarkable job with EMI under 

challenging circumstances, and the company is now on a sounder 

footing. We propose to make a courageous investment in EMI to 

sign artists, develop them, and invest in future technologies and 

distribution models. 

Digital is our future, and we are wholeheartedly committed to 

supporting every viable legal venture that gives consumers what 

they want, when they want it, and on the devices that they want. 

Today fans learn about music on blogs and social networks and 

listen to it on many services, including, for example, Cricket’s 

Muve, Rdio, and Spotify. 
6 

Retailers have the ability to find out what consumers want as a 

result of this new technology. We cannot control consumers’ access 

to music or artists’ access to consumers. Technology has empowered artists and consumers, and I am proud that Universal has 

well over 100 digital music partnerships in the United States 

alone. 

The proposed acquisition comes at a time when all the competition in this industry is as fierce as I have ever known it. All labels 

of whatever size see opportunities that simply would not have existed even months ago. This competition is a good thing, and it requires that we make the right strategic moves in order to protect 

and promote our talent base. 

Let me give you an example of how the landscape has changed. 

Ten years ago, independent labels were 23 percent of the market. 

Today they have grown to 30 percent. Digital has lowered the barriers to entry. Technology and the Internet have enabled anyone to 

create music, market music, and distribute music. 

Reinvigorating EMI with Universal’s resources and innovation is 

not only good for our company but good for artists, consumers, and 

everyone who is connected with music. 

As the artists create the market, Universal is also delighted to 

have the support of the unions SAG-AFTRA and AFM, both of 

whom represent America’s recording artists and professional musicians. Universal will always have one very clear focus: to promote 

music in as many ways as possible. 

So thank you for allowing me to explain why I am so excited 

about the future of this industry, and I look forward to a productive discussion with all of you. 

[The prepared statement of Mr. Grainge appears as a submission 

for the record.] 

Chairman KOHL. Thank you, Mr. Grainge. 

Mr. Faxon. 

STATEMENT OF ROGER C. FAXON, CHIEF EXECUTIVE, EMI 

GROUP, NEW YORK, NEW YORK 

Mr. FAXON. Thank you, Mr. Chairman, Ranking Member Lee, 

members of the Subcommittee. I am Roger Faxon, and as the 

Chairman has said, I am chief executive of the EMI Group, and I 

am pleased to join you today to discuss the Universal Music 

Group’s proposed acquisition of our recorded music division. 

To appreciate the competitive implications of this transaction, I 

think it is important to place it in the context of the market for 

recorded music as it is today, and not as it may have been in the 

past. Without a doubt, the music landscape has changed beyond all 

recognition from where it was even 10 years ago. 

In that time, overall industry revenues have more than halved, 

even as digital revenues have soared. The forces that have produced this decline have substantially shifted the impact of record 

company consolidation, on both consumers and the wider music 

business. I would like to take you through why I believe that to be 

so. 

As digital exploded, the CD fell through the floor. Specialist retailers, which were the backbone of our industry, all but became 

extinct. For the vast majority of the thinning ranks of retailers that 
7 

remain, music is not at the center of their offering. But they are 

central to record companies and the careers of their artists. So, inevitably, it is they, not the labels, that are in control. It is the retailers who decide which albums they stock and what commercial 

terms they will take. 

Retail concentration is even more pronounced on digital platforms. Between the iTunes and Amazon services, you have two 

players accounting for 90 percent of the download business and 

over 80 percent of all digital revenues. In this environment, pricing 

again does not sit with the gift of the record companies, regardless 

of size or market position. 

Digital distribution has created a music meritocracy. There is no 

limit to the amount of music that can be stocked. That means any 

band, budding or established, can have their music distributed on 

digital platforms. Major record companies, if they ever were, are no 

longer the gatekeepers. 

In this meritocracy, good music rises to the top. The skill is in 

finding that music and helping to connect it with an audience, and 

that skill is not confined to one company or group of companies. 

The Internet has also democratized music promotion. The explosion in media has taken promotional power away from the editors 

and radio program directors and put it firmly in the hands of music 

fans through Facebook, Twitter, YouTube, and a myriad of other 

sites and services—all essential to an artist’s ultimate success. 

These fans do not care about market position of an artist’s record 

company. They care about the music and whether it is any good. 

And radio stations are focused on playing only the music that their 

extensive callout research tells them will connect with the highest 

possible audience, irrespective of its source. Again, it is the music 

that matters, not the source. 

Technology has significantly reduced the cost of entry for new 

music companies. As a result, the market is more crowded and 

competitive than it has been in my experience. So record companies 

cannot control consumer pricing, do not control access to consumers, cannot exert control over promotional platforms or music 

discovery tools that fans use, and they have to compete with the 

vastly increased number of alternative paths to market for artists. 

If there ever were antitrust issues implicated with label consolidation, it seems to me they are not present today. 

As a result of all this change, the focus of the music industry has 

returned to where it should be—on helping artists develop the most 

compelling music and working with them to ignite passion for it in 

their fans. And I think we are doing a very good job of that. 

But we also have to assure that the creators of that music are 

properly rewarded for their contribution. And there we are not 

doing as well as we should. The ambiguity and unenforceability of 

our intellectual property laws is failing our creators. Individual 

rights holders are no longer able to protect their music, ISPs are 

not held responsible for their actions, and safe harbor provisions 

designed to encourage innovation are instead being used as a 

shield by bad actors seeking to build their own business without 

compensating the creators whose music underpins those new businesses. 
8 

Technological and musical innovation are not mutually exclusive. 

Content created by great artists and songwriters can drive consumers toward new ventures, and exciting new platforms and products can open up a wider market for the works of creators. But our 

institutions have allowed the balance to shift too far in favor of big 

technology. The impact on our creative community has been devastating and will only worsen if the scales continue to tip unchecked. 

Music touches us in a way that nothing else can. For me it has 

been an absolute privilege to be able to represent some of the 

greatest artists this world has ever seen. Yet without a solid framework of intellectual property rights to underpin that creativity, we 

do not just threaten labels or jobs, but America’s ability to nurture 

the next Jay-Z, the next Beach Boys, the next Norah Jones. That 

will not be the fault of any merger or acquisition. It will be the 

fault of our own unwillingness to stand up to protect one of the 

greatest cultural strengths this country has to offer. 

Thank you. 

[The prepared statement of Mr. Faxon appears as a submission 

for the record.] 

Chairman KOHL. Thank you, Mr. Faxon. 

Mr. Azoff. 

STATEMENT OF IRVING AZOFF, EXECUTIVE CHAIRMAN AND 

CHAIRMAN OF THE BOARD, LIVE NATION ENTERTAINMENT, 

INC., AND CHAIRMAN AND CHIEF EXECUTIVE OFFICER, 

FRONT LINE MANAGEMENT GROUP, LOS ANGELES, CALIFORNIA 

Mr. AZOFF. Thank you, Mr. Chairman, and thanks to the Committee for having me here today. 

I grew up in Danville, Illinois, a mid-American town with allAmerican ideals, and briefly attended the University of Illinois. For 

more than 43 years in the music business, I have focused on one 

thing: serving artists. The music industry I joined was a vibrant, 

emerging, and entrepreneurial business whose format of choice was 

vinyl. Throughout all the choices—vinyl, 8-track, cassette, and compact disc—one thing remained constant: the power of the record 

label. The emergence of the Internet has changed that. 

I work with acts big and small, some that are household names 

and some who should be but just have not yet gotten there yet. Let 

me be very clear. None of them have to sign to a major label anymore. Majors cannot sign every act, and the door is open for many 

others to do so. 

In fact, independent labels are capturing more and more market 

share every year. Bon Iver won the Grammy for Best New Artist 

this year. Esperanza Spaulding won last year. And Mr. Mills’ XL 

has brought us the biggest selling artist of 2011 in Adele. 

Approximately 40 percent of our artists are not even on labels. 

I have no doubt that labels add value, but you just do not have to 

have one in a world where artists can deliver an album direct to 

fans themselves. It is a little like hiring an interior decorator to 

redo your house. The experience and results can be great, but some 

acts enjoy and prefer to do it on their own and put their own imprint on things. With services like iTunes, CD Baby, Top Spin, 
9 

Reverb Nation, Pro Tools, Facebook, Spotify—you name it—artists 

can do everything themselves on their own very professionally. 

It used to be that bands could not make a professional album 

without the backing of a label. Labels used to be THE gatekeepers 

to fans. But today those barriers have been blown away. The new 

gatekeepers are the fans. Facebook and other social media make 

fans the essential promotional power. If a fan ‘‘likes’’ a song and 

tells a friend or two or 10,000, an artist is on their way. The power 

today rests with consumers, not record labels. So while the Internet 

has brought challenges for many, it has also given bands opportunities, access, and control previously unknown to any generation of 

artists. 

The reason a combined UMG/EMI is a good thing rests in the 

much bigger picture. Our industry has been turned on its head in 

the last decade. With all the great developments the Internet has 

brought us, the economics are still daunting. 

Most musicians make a living today from touring, not record 

sales as they once did. And it makes sense, since consumers are not 

buying $15 CDs anymore, they are paying for a single track 

download from Amazon or iTunes or listening to ad-supported services that result in mere fractions of a penny-per-play being paid to 

the artist; or worse, still, they just go to a torrent site and get it 

for free. Late to embrace the Internet, labels are playing catch-up. 

But any way you slice it, recorded music sales are still the core of 

a label’s business model. 

Those who speculate about the demise of competition simply do 

not live in the hyper-competitive music world that I see every day. 

Competition is fierce between the major labels and fierce between 

the majors and indies. Competition is fierce as mobile services vie 

against one another and against Apple. 

As for the brouhaha around this deal, Mr. Bronfman has been 

talking about combining Warner and EMI for the better part of a 

decade. The entire industry expected it to happen, Wall Street expected it to happen, journalists expected it to happen. Warner had 

a chance to outbid Universal in this process but chose not to. Now 

they regret their decision and are spending millions to fight this 

deal. Well, I do not think the Government should step in to give 

them another bite at the apple. That is not how our free economy 

works. 

The fact is it would have been great if EMI could have made a 

go of it on its own. But the recession, piracy, and the facts surrounding Terra Firma and Citi combined to make that a pipe 

dream. The aura of uncertainty made EMI a risky place for an artist to sign. This business is about relationships and confidence that 

the team you sign with will be right beside you through the entire 

journey. 

Uncertainty made it hard for EMI to compete. With Universal 

taking over and their commitment to resurrecting Capitol Records, 

there will actually be another record company for artists to explore 

if they want to. As I see it, it is not one less company—it is one 

more choice. 

Bottom line, the people concerned that a combined UMG/EMI 

would have too much power really just do not get what has happened to the business over the last decade. Labels do not control 
10 

artists. Those days are gone. And no label in the world can control 

the supremacy of the modern music fan. The power shift has already taken place, and no one should worry for a minute that it 

rests with the labels any longer. 

Thank you. 

[The prepared statement of Mr. Azoff appears as a submission 

for the record.] 

Chairman KOHL. Thank you, Mr. Azoff. 

Mr. Bronfman. 

STATEMENT OF EDGAR BRONFMAN, JR., DIRECTOR, WARNER 

MUSIC GROUP CORP., NEW YORK, NEW YORK 

Mr. BRONFMAN. Good afternoon, Chairman Kohl, Ranking Member Lee, and members of the Subcommittee. I am Edgar Bronfman, 

Jr. I thank you for the opportunity to discuss why Universal’s proposed takeover of EMI would do pervasive and permanent damage 

to digital innovation, to the music industry, and to the American 

consumer. 

This merger would mean a world where one dominant company—Universal/EMI—sets the prices, terms and conditions for future digital evolution. Where that company would stand as gatekeeper between consumers and choice, and where digital innovation, one of the main engines of economic growth in this country, 

would be stifled solely for the benefit of one already large company 

that wants to become one dominant giant. 

The Universal/EMI merger would reduce the number of music 

majors from four to three, one of which would be a super major, 

almost as large as the other two majors combined. Universal/EMI 

would control more than 50 percent of the Billboard Hot 100 titles 

and 42 percent of U.S. recorded music revenue. It is worth noting 

that a combined AT&T/T-Mobile would have controlled 43 percent 

of U.S. wireless revenue. 

Universal/EMI’s 42-percent share would be extreme by almost 

any standard. The media industry has never seen this level of concentration. Last year, the largest movie studio, Paramount, had 

about 20-percent market share, Random House was under 20 percent, and Comcast, the largest cable operator, had just over 20 percent of pay television. 

Universal has tried to portray its market share as lower than it 

actually is by excluding labels that it distributes, but that is disingenuous. Owned and distributed market share is the metric Universal uses when talking to potential purchasers of its parent 

Vivendi’s shares. That is the metric it uses when it is seeking better economics from the Copyright Royalty Board. And, most important, that is the metric it uses when negotiating the terms of its 

digital deals. 

When it comes to market power, especially in digital, where contracts include all music under distribution, there is no distinction 

between music that is distributed and music that is owned. Market 

share alone should make this merger suspect. But its profound ripple effects on digital innovation make it untenable because of music’s unique role in the vibrant intersection between media and 

technology. 
11 

A decade ago, the Internet was assumed to be the music industry’s downfall, but we worked to reinvent ourselves, and last year 

U.S. music shipments increased for the first time since 2004. Digital downloads now account for over 50 percent of U.S. recorded 

music sales, overtaking physical sales for the first time. Even proponents of the merger acknowledge this inflection point in the U.S. 

The real winners are consumers, who now enjoy music in more 

ways than ever before. More consumers pay for music than for any 

other form of digital content, and we are still in the early stages 

of music’s digital transformation, with thousands of innovators 

dreaming up new opportunities. However, this proposed merger 

would dramatically impede, even derail, this transformation. 

To understand the risk, let me share a story to illustrate how innovation comes to market. It is about an entrepreneur from a technology company who came to pitch Warner on a truly disruptive 

idea in 2002—a digital music ‘‘startup.’’ His company was a great 

innovator but had not seen significant growth in years. Yet this 

person believed he could reshape the way consumers experience 

music. 

That entrepreneur was Steve Jobs. The company was Apple. The 

startup was iTunes. 

Although Warner had only 17-percent U.S. market share, it was 

the first major to sign a deal with Apple. With that, Apple had the 

foundation it needed. It shopped the Warner deal around to the 

other majors and eventually got them all onboard. And the rest is 

history. iTunes has defined Apple’s content strategy, a key to its 

becoming the world’s most valuable company. 

The iTunes story shows how important the current competitive 

balance among record labels is to enabling digital innovation. The 

sequential negotiation technique that Apple used in 2002 is used 

today by every digital startup. This process is critical for disruptive 

digital services that threaten the status quo. Entrepreneurs can 

reach terms with any of the four majors and build momentum from 

there. 

Though even at its current large size some of Universal’s actions 

are dampening digital innovation, as the Wall Street Journal reported Wednesday, the market generally works today. However, 

this proposed merger would obliterate the fragile competitive dynamic that currently exists. With its 42-percent market share, Universal/EMI would unilaterally determine which services would live 

or die. It would be able to coerce ever more onerous terms, taxing 

entrepreneurs, jeopardizing innovation, constricting choice, and 

raising prices for the American consumer. 

In sum, consumers are well served when no one company can 

dominate all decisionmaking for the market. Permitting this merger would grant Universal/EMI the power to serve as the sole arbiter of digital innovation. A broad group ranging from consumers to 

artists to digital startups, innovators and record companies alike 

have all expressed opposition to this merger so that a diverse and 

vibrant future can exist for music fans everywhere. We believe 

Universal’s attempt to buy its way to a position of unilateral dominance is inconsistent with such a future. We hope this Subcommittee will agree, and we urge you to do what you can to prevent this merger from being consummated. 
12 

Thank you. 

[The prepared statement of Mr. Bronfman appears as a submission for the record.] 

Chairman KOHL. Thank you, Mr. Bronfman. 

Mr. Mills. 

STATEMENT OF MARTIN MILLS, FOUNDER, BEGGARS GROUP, 

LONDON, UNITED KINGDOM 

Mr. MILLS. I am honored to be here. Thank you. 

Please forgive me if I use some strong words today, but having 

read the statements of those on the monopolists’ bench, I believe 

they are needed. I speak not just for myself but also for thousands 

of independent labels and artists worldwide. 

Seven letters: C-O-N-T-R-O-L. It spells ‘‘control.’’ That is what 

this is about. 

Do not believe them when they say the music market is now a 

Garden of Eden in which any young artist can become famous overnight without a label. That is simply not true. Ask them who these 

fortunate artists are. 

Mr. Azoff says that 40 percent of his artists manage without a 

label. When I Google his company, I find the Eagles, Christine 

Aguilera, Kings of Leon, John Mayer, Van Halen, Jennifer Hudson, 

Miley Cyrus, Kenny Chesney, Kid Rock, Avril Lavigne, Aerosmith, 

and Jimmy Buffett—all on the front page. I do not recall any of 

them becoming successful without a record label. Do you? And all 

of them, I believe, released their last albums in association with a 

major. Whereas established stars may plow their own furrow these 

days, often with the benefit of services from a major label, any new 

artist needs a label just as much as Steven Tyler did. Even our artist Adele needed Sony’s strength in the U.S.A. 

Do not believe them when they say market share is not market 

power. Market power is why they are doing this—the power to 

dominate digital services and impose their demands upon them, 

the power to leverage a disproportionately onerous deal, the power 

to squeeze out the competition, the power to impose what Universal wants on the consumer. You will see how they do that in the 

written evidence. It is all true. 

Do not believe them when they say the independents represent 

a countervailing competitive force, the thousands of tiny, fragmented indies. Do not believe the 30-percent of the market figure 

for indies in this context. Two-thirds of that has digital rights controlled by the majors. 

Do not think that the resulting Universal/EMI 40-percent market 

share figure is as simple as it looks. Universal/EMI’s share of hit 

Billboard’s Top 100 for the last year was nearly 70 percent when 

you include controlled shares and negative rights to block its repertoire. Indeed, looking at just last week’s Billboard’s charts, eight 

of the top ten singles will be post-EMI controlled by Universal. 

That is 80 percent. 

When you hear Universal downplay its market share today, you 

should ask yourselves what market share do they insist on in their 

commercial negotiations, for splitting anti-piracy proceeds, for advances for music services. Very different. This is about Universal 

leveraging new acts who are already successful acts and obtaining 
13 

more than their fair share of the oxygen of exposure. Even today, 

contrary to what Mr. Faxon says, major labels have 92 percent of 

radio play. 

Most great music, the music that changes tastes and lives, starts 

outside the mainstream, and that means on independent labels. 

Elvis Presley, Muddy Waters, R.E.M., Adele—they all did that. In 

fact, the economics of the majors these days means that signing 

artists without mass market potential makes no sense for them. If 

this transaction goes through, the next great artist may never be 

found. 

With the kind of increased market dominance that Universal 

seeks here, it will completely control the shape of all new digital 

services. No one will be able to deny them. Look at their ability to 

raise prices of iTunes’ new music. Look at the Nokia ‘‘Comes with 

Music’’ service disaster and Universal’s hand in that. Look at the 

terms they were able to impose even on Google. It is all in the testimony. 

Jean-Bernard Levy, the CEO of Vivendi, Universal’s parent, is 

reported to have said that the aim is to boost Universal’s bargaining power with mass market stores and a new breed of online 

distributor. Boost their power. Exactly. 

Modern society sees unlawful monopolies as being bad, with good 

and with obvious reason. Some are worse than others. If airlines 

merge or soft drinks companies, is the effect on consumer choice 

that bad? Isn’t one seat or one soft drink pretty much the same as 

another? But that is certainly not the case with music. Music matters to people. It affects. It changes lives. It is human. It is personal. You cannot substitute a Katy Perry for a Lady Gaga for an 

Adele. 

Yet in the world Universal seeks, great music will suffer, and we 

will be headed for a lowest common denominator music market 

with consumers having less choice and probably paying more. 

Universal is a great company. Do not get me wrong. It has got 

great people. But there is big and there is too big. Give them the 

position of increased power and greater dominance that they seek, 

and they will exploit it. And specifically for a new company to start 

and grow in this environment, as mine did, will quite simply be impossible. 

Please forgive my passion today, but not only do I absolutely believe what I say, I know it to be true. 

Finally, Mr. Chairman, I must apologize. I have to leave at 3:30, 

which is the anticipated end time, but I welcome any questions before that point. 

Thank you. 

[The prepared statement of Mr. Mills appears as a submission 

for the record.] 

Chairman KOHL. Thank you, Mr. Mills. 

Ms. Sohn. 

STATEMENT OF GIGI SOHN, PRESIDENT, PUBLIC KNOWLEDGE, 

WASHINGTON, D.C., ON BEHALF OF PUBLIC KNOWLEDGE 

AND CONSUMER FEDERATION OF AMERICA 

Ms. SOHN. Chairman Kohl, Ranking Member Lee, members of 

the Subcommittee, thank you for the opportunity to discuss the sig-
14 

nificant consumer harms the Universal Music Group and EMI 

Music merger would cause if allowed. I am speaking today on behalf of Public Knowledge and the Consumer Federation of America. 

Online music and digital platforms they ride on hold tremendous 

promise for consumers and artists. Gone are the days when music 

fans could only listen to the latest album if they traveled to a physical record store, bought the album, and brought it back home to 

play on a stereo system. Technology now allows consumers to buy 

music at the click of a button and listen to that music on any number of personal devices. Artists also have been more empowered 

and capable to retain their independence by utilizing digital distribution platforms rather than going to a label. 

Now, imagine that it is last year, 2011, a great year, and you are 

in the business of starting a digital music service in the United 

States. This chart represents the Billboard Hot 100 songs for 2011 

as measured by sales and streaming activity. If you wanted to attract the consumers who are the most active music listeners, these 

100 songs would have been the essential package. Without them, 

any avid music fan would see your service as incomplete, and you 

would not be able to attract the critical mass of subscribers necessary to make a profit. By the way, every single one of these artists is signed with one of the four major music labels. 

Now, imagine a world where UMG and EMI had already merged, 

and they decided that they would withhold their songs from your 

digital music service. If that was the case, then this is what your 

digital music service library would look like. The playlist suddenly 

looks very sparse. After all, you would not have six of the top ten 

songs for 2011. You would not even have a majority of the top 100 

songs. A combined UMG and EMI would own 51 of them. The fact 

is you just would not have a viable digital music service, and as 

a result, you would be beholden to the merged entity. That is the 

harm this merger presents to consumers. 

Despite all of the improvements in technology and reduced costs 

of distribution, the music business is not immune to the exertion 

of market power. As more consumers demand their music through 

the Internet, this merged entity—a super label, so to speak—has 

the inherent incentive and ability to maintain dominance by exerting its market power over this nascent business. That is why we 

believe this merger should be blocked. If it is not, you will see less 

competition and choice in distribution, stifled innovation, and higher prices. Already the music industry has gone through breathtaking consolidation as six major record labels have become four. 

Already innovative online music companies are challenged to enter 

the U.S. market. For example, the online streaming service Deezer, 

which is similar to Spotify, it has enjoyed success in 200 territories 

around the world, but it has not been able to enter the U.S. market 

because of licensing. 

EMI Music has gone against this trend. They were the first label 

to sell a digital download. They were the first label to remove digital rights management from their MP3s and iTunes, allowing consumers to listen to their music on any device. And they are the 

only label that actively works as a liaison between application developers and artists through their Open EMI Project. 
15 

If this merger is allowed, consumers and artists will be the losers. Removing a maverick competitor like EMI from the market 

will ensure that the remaining three players obtain more control 

over the future of online music. I ask that the members of the Subcommittee take a hard look at this merger and its impact on consumers and artists. 

Thank you. 

[The prepared statement of Ms. Sohn appears as a submission 

for the record.] 

Chairman KOHL. Thank you, Ms. Sohn. 

Mr. Grainge, Universal has argued—your company—that we 

should not worry about its purchase of EMI even though this will 

result in only three major record companies that will remain because the record companies have little power over price. You contend that pricing power is in the hands of online companies like 

Apple iTunes or large chains like WalMart and that you cannot 

raise prices because you compete with free pirated music. You also 

argue that EMI is not competitively significant because it has few 

top artists under contract. So then please explain to us, why did Universal pay $1.9 billion 

for EMI? 

Mr. GRAINGE. Senator, this is an incredibly changing landscape. 

The competition within the industry is really quite extreme and vibrant, and we are absolutely committed to giving our music—giving the artists as many opportunities to get their music to as many 

consumers and fans as we can. 

I must say that from my experience and where I sit, we would 

be insane not to license, develop, make our music available through 

as many platforms, through as many retailers as possible. Through 

technology, the consumer is voting and is telling all of us what they 

want, and we have to make it available. 

Chairman KOHL. Mr. Bronfman, why do you think Universal 

wants to buy EMI? 

Mr. BRONFMAN. Well, I think the three words from the movie 

‘‘All the President’s Men’’ is useful: ‘‘Follow the money.’’ Universal 

is spending not only $1.9 billion to buy EMI, but it is taking even 

further risk because it has agreed to pay that purchase price, or 

essentially all of it, whether or not it achieves regulatory approval. 

If it does not achieve regulatory approval, the business goes back 

to Citi, Citi has to sell it in a distressed sale to someone else and 

remit whatever price they get to Universal. So Universal, if it does 

not buy EMI, is at risk for hundreds of millions of dollars. So, 

clearly, Universal wants it very, very badly. And the real reason 

is that it buys them a market-dominant position. 

It is very interesting to listen to the three witnesses to my right 

talk about how the Internet has changed the industry, and it has. 

But no one should be fooled that access equals revenue. Access does 

not equal revenue. Ninety-two percent of all radio airplay in the 

United States is controlled by major music labels. Of all the songs 

on iTunes, 94 percent of those songs have been downloaded 100 

times or less in the past year. 

This is an industry that does not operate on the 80/20 rule. It 

is an industry that operates on the 5/95 rule. Five percent of our 

products represent 95 percent of our revenue. So access is one 
16 

thing, revenue is another, and controlling that 5 percent is very, 

very valuable indeed. And that is why they are paying the price 

they are. 

Chairman KOHL. Mr. Bronfman, we understand that Warner 

Music attempted to purchase EMI. Is your opposition to the merger 

motivated by Warner’s commercial interest or the interests of consumers? Isn’t it true that your opposition to this deal is that it does 

not benefit Warner? 

Mr. BRONFMAN. Well, I certainly do not sit here and portray myself as a saint, Senator. What I would say, though, is that Warner’s 

interests here are, frankly, not much more relevant than Sprint’s 

interests were in the AT&T/T-Mobile merger. The fact of the matter is that this merger creates a market-dominant position—a market-dominant position that could not have been achieved by Warner had Warner acquired EMI. And so the words from Mr. Mills 

and Ms. Sohn are real. Granting this merger grants to Universal 

sort of the sole right to determine what digital services live, what 

digital services die, what they pay, how much they pay, et cetera. 

And I do not believe that this Committee should allow a very clear 

and significant concentration to occur. And I hope that the Committee will continue to investigate this and will come to that conclusion. 

Chairman KOHL. Mr. Grainge, if this merger is approved, there 

will be only three major record companies, as we know—Universal, 

Sony, and Warner. It is a basic principle of antitrust analysis that 

reducing the number of competitors from four to three carries substantial risk of higher prices to consumers by making parallel pricing easier and eliminating the possibility of one maverick company 

engaging in things like price cutting. We saw this last year as we 

reviewed the AT&T/T-Mobile merger that, as you know, was ultimately blocked. 

So why should this merger be viewed in any substantially different way? 

Mr. GRAINGE. Senator, the thought that we would constrict our 

artists whom we have invested in and constrict the investment that 

we make in EMI to dissolve the market is—would be commercial 

suicide. And I would also have every single artist I have ever 

signed and every single artist I am ever going to sign in a line outside my door saying, ‘‘Get me out of here.’’ 

We have a duty, we have a responsibility—I sit with artists—to 

sell and to bring their music to their audience and to their fans and 

to help them market it. Some of the descriptions are not the real 

operating world. We are here to invest in EMI to create more 

music, to create more options, to create more opportunities, and to 

create more platforms so that the music can be discovered and sold 

to legitimate fans. 

Chairman KOHL. Ms. Sohn, what is your view? Does this merger 

carry the same risks for competition and consumers as any fourto-three merger? 

Ms. SOHN. Absolutely. I think the parallels with the AT&T/T-Mobile merger are really spot on. If this merger were to go through, 

the top three labels would have 90 percent of the market, the top 

two would have 70 percent of the market, and you would have this 

one super major label that would have the ability to pick winners 
17 

and losers when it comes to digital distribution services. And these 

services lower prices for consumers, they provide more choice. So 

if Universal—if this new entity had the ability to basically decide 

who lives and who dies among digital music services, that is going 

to raise prices for consumers, and that is not good. 

Chairman KOHL. Thank you. 

Mr. Lee. 

Senator LEE. Thank you, Mr. Chairman. 

Mr. Azoff, you have achieved a great deal of success and wielded 

a lot of influence within the music industry. If I am not mistaken, 

Billboard ranked you first out of a list of 50 of the most influential 

people in the music industry in 2012. So given your background 

and your experience, I was curious to know what you would say in 

response to the question—well, let me just back up a little bit. 

Critics of this merger have suggested—and we have heard some 

of this today—that the majors continue to have near-complete control over the music industry, especially when it comes to emerging 

digital distribution models. Do you believe this? Do you concur with 

that assessment? And if so, what is your reasoning? 

Mr. AZOFF. First of all, you know, any position that I have in the 

industry always flows because I represent artists and they trust 

me. I have been predominantly a manager my entire career, and 

that is the core business I run at Live Nation every day. So when 

I speak, it is not just me saying these are my views. This is kind 

of a view I take from having talked to several artists, and, you 

know, labels traditionally have been the last guys to get it. You 

know, they kind of acquire more blocking rights than rights. There 

has been amongst the executives—and I was one at Universal in 

the 1980s—fear to change. I believe that we are at a transformational, wonderful point where, through all the criticism and 

bad that the Internet has brought for creative people in the music 

business, you know, the time is here and now that they can do it 

themselves. 

You know, people that we represent like Jason Aldean on Broken 

Bow Records, currently Calvin Harris on Ultra Records, you know, 

I do not know why they are not on these charts, because they have 

exploded. A band from England called One Direction, you know, 

the music basically came off of Sirius/XM Radio. It is a Sony act. 

But, you know, these are exciting times where acts are happening 

quicker, careers are being made quicker that are translating—— 

Senator LEE. Is that tending to diminish the influence of the majors? 

Mr. AZOFF. Yes. My point exactly. 

Senator LEE. So with this particular merger, do you have an ongoing concern that—creating an even bigger major out of the biggest major that currently exists, aren’t you concerned that might 

cause some problems? 

Mr. AZOFF. No. I actually think that it fosters artists to consider 

the independent sector or do it themselves even more. So from the 

artists’ point of view that I talk to, the less majors there are, the 

more options there are. And, in fact, for those—and there are artists that require incredible investment that do want the major label 

experience—the fact that there will now be a vibrant Capitol 

Records, which Universal has committed to staff, it is actually, you 
18 

know, it is the best of both worlds to me because you have now got 

more room for the independents, but you also have a more vibrant 

Capitol Records for those artists that do choose to want to be in 

that sector. 

Senator LEE. So the impact on independent labels and unsigned 

artists would not necessarily be a negative one, in your opinion? 

Mr. AZOFF. It certainly might be a negative when I—you know, 

most of the artists that I speak to consider it a positive. 

Senator LEE. OK. Ms. Sohn, I wanted to ask you a question. In 

your written testimony, you state that EMI is not a failing firm 

under antitrust analysis. Now, to my knowledge, neither of parties 

has suggested that EMI is a failing firm, but they have alleged that 

the merger might well result in what I think they describe as just 

a more efficient allocation of EMI’s resources. 

Do you believe that this proposed merger could or would result 

in a more efficient use of EMI’s resources? 

Ms. SOHN. I think what this merger would do is eliminate a maverick competitor, and that is not good for consumers, that is not 

good for the market. As I said before, they were the first label to 

take digital rights management off of their iTunes. They were the 

first to license to any music service that they did not own. They 

were the first to do a digital download. They did a David Bowie 

song in 1996. 

So the fact of the matter is that EMI continues to push and push 

and push this industry to embrace digital technologies that they 

really have had trouble embracing. It kind of makes me laugh to 

hear some of the folks to my right now say how wonderful digital 

technologies are and these digital music services where I really 

think it actually scares the living daylights out of them because 

these services have the potential to eliminate the middle man. And 

they lower costs for consumers, and when you lower costs for consumers, you also lower your profit margin. 

Senator LEE. I cannot imagine there is any player in this market 

that is not scared by the digital revolution in some way or another. 

That part is understandable. You are not suggesting that the fact 

that there is this fear of the uncertainty associated with the technology itself is indicative of a desire to create anticompetitive effects? 

Ms. SOHN. No, but I am saying it provides an incentive to try to 

control the technology, to try to take a piece, as Universal has often 

done, try to take a piece of these services, charge excessive licensing rates, deny licensing. I mean, that has really been the history 

of Universal, is litigation, excessive licensing fees, denying licensing fees, and taking a piece of these services. 

Senator LEE. So an increased opportunity and an increased incentive. 

Mr. Grainge, do you want to respond to that? And while you are 

at it, do you want to also respond to a claim that was made a few 

minutes ago by Mr. Bronfman about the terms of the deal, the $1.9 

billion being paid basically risk-free to the current owner of EMI? 

Mr. GRAINGE. I can only continue to repeat what I have said, 

that it would be creatively insane for us not to work with as many 

digital services as possible. I have heard AT&T mentioned here a 

couple of times. We have no direct relationship, billing relationship, 
19 

with the consumer. The analogy just does not work. Our relationship, everything that we do, is to create business. I keep using this 

word ‘‘duty.’’ We have a duty to the people that we sign, whether 

or not they were signed in 1970 or whether or not they are signed 

tomorrow afternoon. They come to us to market, to sell, to create, 

to work with them on their music on a global basis, and that is 

what we do. 

I think in terms of some of the other comments—we negotiate. 

Negotiation in a free market is the way a free market is constructed, and everybody who sits with me on this panel today who 

is in a negotiating position where you are making agreements will, 

I hope, agree with me. And we are very proud of what we do. I 

have spent my entire life, my entire career protecting artists and 

trying to create business and trying to create opportunity. And that 

is what I am going to spend, hopefully, the next 33 years doing as 

well. 

Senator LEE. Thank you. I see my time has expired. 

Chairman KOHL. Thank you, Mr. Lee. 

Senator Franken. 

Senator FRANKEN. Thank you, Mr. Chairman. 

Mr. Grainge, first I want to thank you and your staff for getting 

the information I requested yesterday. As I mentioned during our 

meeting, I was very concerned when I heard that major record labels like yours and Warner’s are requiring digital platforms to turn 

over a piece of their equity as a condition of licensing your music 

library. 

Let me quote your predecessor from 2008, Doug Morris. He said, 

‘‘No one is going to build a business off our backs, if I can help it, 

without us being a part of it.’’ 

He went on to say, ‘‘If one of these digital startups becomes a big 

enterprise and it is off our product, it seems to me that we should 

own part of it.’’ 

Now, I understand this does not happen in every digital deal, but 

I worry that if your market share—and you said you negotiate, and 

market share counts in a negotiation. That is what you do. You negotiate. That if your market share swells to approximately 40 percent, you will have every incentive to demand more equity, a larger 

cut of ad revenues, of upfront payments, and other onerous terms 

from online startups as a condition of turning over your content. 

Can you explain to me why this is not the case? 

Mr. GRAINGE. Well, firstly, in terms of what my predecessor said, 

who is a great guy, I disagree with that. 

Senator FRANKEN. OK. 

Mr. GRAINGE. It is in our complete interest to create as many opportunities for the music that we create so that consumers can buy 

it. In terms of our deals, we have well over 100 deals in the United 

States. They probably run into hundreds and hundreds of deals 

throughout the rest of the world. We are completely technologically 

agnostic. However consumers want to buy their music, whether or 

not it is on a phone or whether or not it is through a stream with 

a subscription model or ad-based, we love it. 

Senator FRANKEN. OK. Well, let me go to Ms. Sohn on that, because there is no doubt that the music industry has been turned 

upside down several years with the explosion of digital platforms, 
20 

and that is the subject I am talking about right now. And Mr. 

Grainge has repeated this over and over again. He would be insane 

not to let every platform that comes to him play his music. 

Yet I understand from your testimony that Deezer, a musicstreaming service that expects to be in 200 countries by the end of 

this month, has not been able to work out a deal with Universal 

that will allow it to launch in the U.S. This seems at odds with 

what Mr. Grainge is saying, and it seems to add credence to the 

idea that Universal will exploit its market position to the detriment 

of startup companies. 

Can you explain what happened in the Deezer case and whether 

we should be skeptical of Mr. Grainge’s contention that they are 

doing everything possible to cut licensing deals with digital platforms? 

Ms. SOHN. Thanks. So the Deezer situation is actually worse 

than you portray it because Universal sued Deezer in France because it did not like the fact that it was providing five free songs 

in its so-called freemium tier, so that is the tier that has ads on 

it. And it is interesting in France there are very, very detailed regulations that regulate the music industry and regulate these digital 

music services. So Universal sued Deezer under these regulations, 

and the French court not only sided with Deezer, but it said that 

Universal’s behavior was ‘‘an abuse of a dominant position.’’ 

So, again, this is a pattern of lawsuits. Universal sued the video 

site Veoh, which won in court, was found to be legal in court. It 

was the first to sue the music-streaming service Grooveshark. It 

did not license to Beyond Oblivion, a Fox service that never 

launched. It raised its fees on eMusic so high that it was forced to 

raise prices, and it has equity stakes in MOG, Spotify, and Vevo. 

So that is the modus operandi. I do not consider that embracing 

digital music services. I consider that trying desperately to either 

get a piece of it or stop them. 

Senator FRANKEN. OK. Mr. Grainge, I want to give you an opportunity to respond to that, but since Mr. Mills has to fly away, I 

want to make sure that I get a chance to talk to him in this round. 

Mr. Mills, I had a meeting with Universal yesterday, and, you 

know, every individual I liked. I think all of you probably are 

friends, and for good reason. You are all nice people. 

[Laughter.] 

Senator FRANKEN. And we had a great time. 

Anyway, but someone in that meeting said that a single artist 

could make or break a digital platform, because today’s consumer 

of digital platforms expect every song in the universe to be on that 

digital platform, and if one artist is not on that, they will go on social media and tell their friends, ‘‘Do not go on this because not 

every artist is on it.’’ 

Now, I understand your artist, Adele, has chosen to keep her 

songs off of Spotify. Is that true? 

Mr. MILLS. Some of them, yes. Most of the most recent album. 

Senator FRANKEN. OK. Now, do you think that has impacted 

Spotify’s ability to succeed? And what would you say about this argument that if you had one artist with one song missing, it will 

bring down a digital platform? That does not seem to hold for me. 
21 

Mr. MILLS. No, I think that is an unsustainably extreme position. 

Having said that, though, we believe with independents that services that provide the widest possible range of music will do best. 

If you look at iTunes and Spotify, for example, they both do that. 

Adele’s decision to keep most of her music off Spotify has been 

her own decision, not ours. We are great supporters of Spotify. I 

think that clearly any digital platform needs big songs. It needs the 

‘‘must-have’’ repertoire, which is where Universal’s power and 

dominance and control is of considerable concern to us because no 

service can exist without Universal. And I think as the lady to my 

left mentioned, most tellingly, when Universal came on to eMusic, 

eMusic was a platform dedicated completely to independent labels 

and independent artists. They realized over time that they could 

not sustain their business with just independents. They gradually 

brought on the majors. Universal was the last one to be brought 

on, and when they brought them on, they changed their terms of 

trading completely. The front-line prices went up, back-line prices 

went down, and the service became a completely different animal, 

such to the extent that we decided we didn’t want to work with it 

anymore. So Universal’s dominance in that particular instance 

changed the nature of that service. 

Senator FRANKEN. Well, thank you. My time is up. I hope we can 

get to a second round. Thank you, Mr. Chairman. 

Chairman KOHL. Thank you, Senator Franken. 

Senator Blumenthal. 

Senator BLUMENTHAL. Thank you, Mr. Chairman, and thank you 

for holding this hearing. And I would like to thank all the participants for being here today, and I hope that, just as you are friends 

of Al Franken now, you will be friends of all of us at the end of 

it. But thank you for being here. 

You know, the American Antitrust Institute submitted an analysis, which no doubt you have read, showing that market share in 

the digital and physical music marketplace has been virtually constant over the last 6 years, and those shares have stayed constant 

regardless of these major technological revolutions in recording and 

distribution costs. And all of the four major labels have retained 

their hold on 90 percent of the market. 

In the ordinary antitrust analysis, that would bespeak lack of 

significant competition. In the ordinary antitrust analysis, reducing 

competitors, assuming there is competition from four to three, 

would sound major alarm bells. It might even be regarded as a 

five-alarm fire. And, in fact, Ms. Sohn draws the analogy to the 

AT&T/T-Mobile situation where, exactly as here, the number of 

competitors went from four to three. 

Is there something about this industry that makes it so unique 

that we should not apply ordinary antitrust analysis, Mr. Grainge. 

Mr. GRAINGE. I think that market share in this industry is far 

less relevant than maybe in any other industry. As I said, telephone analogies and consumer relationships in my opinion are not 

relevant. We do not have a direct relationship with the consumer. 

And I think that the artists make the market. I think that you are 

as good as your market, depending on what choices you have made 

and what artists you have signed and how well you have delivered 
22 

them to the market and how well you have created a demand for 

them. 

We have heard about Adele and, Mr. Mills, I wish we had Adele, 

but we did not. And Adele has had probably one of the biggest-selling albums for maybe the last 10 years. 

Senator BLUMENTHAL. And I understand that point, essentially— 

Mr. Azoff makes it very well—that artists have the kind of access 

to their fans that perhaps makes it somewhat distinctive. But 

should we simply disregard the normal antitrust analysis here? Let 

me pose that question to anyone on your side of the table who 

would like to—or any of the witnesses. Mr. Mills. 

Mr. MILLS. I would like to answer it, if I may. I think any ordinary antitrust analysis is even more crucial in this because we are 

all monopolies. I have a monopoly on Adele’s music. Mr. Grainge 

has a monopoly on Lady Gaga’s music. The whole nature of copyright is that you can only get one artist from any source. It is not 

like airline tickets which are interchangeable, as I said in my address. We are all little monopolies. And I think that makes antitrust far more crucial in our IP-based industry than in any other. 

Senator BLUMENTHAL. Ms. Sohn. 

Ms. SOHN. So antitrust law addresses market power, right? It 

does not address market share so much as the amount of power 

you can impose on a market. And as we said before, because this 

new entity would control 42 percent of the market, it could impose 

its will on any digital music service. That is what is really, really 

important. And I think you cannot also forget the fact that for corporations copyrights last 90 years. So that is another monopoly on 

top of a monopoly. So you are not only in control of the—each label 

not only has its own artists, but those copyrights are also a monopoly that lasts 90 years. 

Mr. AZOFF. I think that we are a very unique industry, and the 

point where, you know, I guess you could say that Apple was built 

on the back of recorded music a bit, you know, the company was 

struggling. Sony, the Sony Walkman certainly saved Sony; the creative works of artists helped that. So I do not think you can 

apply—you know, we are a quirky, crazy industry that relay, you 

know, its people’s creative works. What I love about what is going 

on is for the first time in my 43 years in the business, artists have 

real power. So I just do not think you can apply market share 

standards to any of it for that reason. 

Mr. FAXON. I would like to add that I think that what I have 

been hearing from those who are opposed is a view of a market 

that is 10 years old. We are in a very different place. In 2002, the 

major record companies tried to come together to control distribution in the online world. They failed dismally. It was a clarion call 

to an industry that thought that it could control the way that 

music could reach consumers. It could not. The consumers broke 

through. They found the music wherever they could find it. They 

brought it, and that is why no music company—no music company—can stand away from licensing rights into the marketplace. 

It will not have a business. 

And Mr. Azoff’s customers and Mr. Mills’ artists will never sign 

on to those labels because they will not be in the market. They will 

have denied access, and that means that they are out of business. 
23 

And it is a fundamental shift in the way in which this market has 

worked. 

Senator BLUMENTHAL. My concern is that your argument or justification for the merger seems to depend on asserting that antitrust principles and precedent such as we would apply to almost 

any other industry simply should not be applied here because it is 

a unique or quirky industry that is fast-changing and where fans 

have certain powers, which I think is a heavy lift. 

Mr. FAXON. Senator, I would not say that. I would not say that 

antitrust principles should not be applied. They absolutely should 

be applied. The question in antitrust is not, as Ms. Sohn said, 

about what your market share is. It is about whether or not you 

can exercise market power. And the balance of power—the other 

services create your access. They have the power to keep you from 

having access. There is an equalizing force here, and that force is 

set really for the first time in our experience by the consumer because the consumer decides where they are going to actually find 

their music. 

And so the power is sitting in the consumer’s hands, and I think 

that that changes the business structure, but it does not change 

the analysis. It is about where the market power is. And I think 

if you look at Ms. Sohn’s discussion, she very clearly talks about 

the empowering of artists and the empowering of consumers. But 

nowhere does she bring that back to an analysis of antitrust. If 

they are empowered, why is it that the record company somehow 

is a blockage? They control where the market goes, and we have 

to deliver against it. And every time this industry has fought that, 

it has lost. And look at how much it has lost. 

Senator BLUMENTHAL. My time has—— 

Mr. FAXON. It has lost half of its value. Sorry. 

Senator BLUMENTHAL. My time has expired. Mr. Bronfman I 

think he wants to add something, so with the Chairman’s permission—— 

Mr. MILLS. Mr. Chairman, sorry. May I be excused? I appreciate 

that. Thank you very much. 

Chairman KOHL. Thank you, Mr. Mills. We appreciate your being 

here. 

Mr. BRONFMAN. Senator Kohl, thank you for giving me some 

time to respond. 

First of all, I was interested to hear Roger say that the answers 

that we have given are 10 years old. I would say at least we have 

given some answers, because I have not heard anyone on my right 

actually answer a question from the Senators that they have asked. 

What I would say is when we talk about market power, let us 

just ask a very simple question. If you are a digital startup, who 

do you go to to get a license? With all respect to Mr. Azoff, who 

may be the most powerful man in the music industry, they do not 

go to Mr. Azoff. They do not go to Live Nation. They do not go to 

Front Line. They go to Universal, they go to EMI, they go to Warner, and they go to Sony. And if Universal and EMI together have 

half of the hits and 40 percent of the market, there is only one 

place any digital startup must go. Everyone else becomes irrelevant. They go to Universal. 
24 

Lucian, whom I have great respect for and great friendship for, 

said he hopes we would agree that we all negotiate. Well, licensing 

is about negotiation, but Warner historically has always sought its 

market share in its licensing deals so that its revenues would represent equal to its market share. Universal has historically sought 

greater than its market share in its negotiations with the licensing 

deals. That is a negotiation. It is a free market. But let us not pretend that all licensing is created equal. Licensing is not created 

equal. 

In addition, Universal talks about how many licenses they do. 

Well, let me tell you, at least 50 of those licenses are exclusionary 

licenses. They are licenses where only Universal Music is licensed 

and other music companies will be invited in some time later. 

So, again, there may be hundreds of deals, but they are not all 

created equal. They are not all created in the same terms and conditions. And so the issue is not whether or not Universal will or 

will not license. Sometimes they will, sometimes they will not. But 

it is also about the terms on which a market-dominant power can 

license and will license. 

Chairman KOHL. Thank you. 

Senator BLUMENTHAL. Thank you, Mr. Chairman. 

Chairman KOHL. Mr. Grainge, you argue that record companies 

are not so important in this new digital age. An artist does not 

even need a record company to distribute music on the Internet. 

Nevertheless, of the top-selling songs in 2011, the four major record 

companies distributed 96.5 percent of them, and the four major 

record companies controlled or distributed 100 percent of the 100 

titles making up the Billboard Hot 100 chart for 2011. 

Don’t these stats demonstrate as clearly as can be that the continued importance of the four major record companies is intact? 

Mr. GRAINGE. Senator, I am not aware of any of those stats. All 

I can continue to say is we try and create as much quality music 

and music that consumers want to buy, and that is what we do and 

that is what we are dedicated to. 

Chairman KOHL. Mr. Grainge, to follow up, the Wall Street Journal reported this week that, speaking at a conference in March of 

2011, the chief financial officer of your corporate parent, Vivendi, 

Philippe Capron said, and I quote: ‘‘Given our market share in 

many territories, North America, and most European countries, we 

could not completely buy the recording businesses of either EMI or 

Warner.’’ 

Do you know why a senior executive in your corporate parent 

held a view which is apparently contrary to yours just a year ago? 

Mr. GRAINGE. Senator, I understand—I have heard the quote, 

and I understand why you ask me about it. I cannot speak for him. 

I was not there. He is a financial person at our corporate parent, 

and I disagree with him. 

Chairman KOHL. Mr. Bronfman said a few minutes ago—and, incidentally, he came to visit us the other day, and he said you are 

among the smartest and toughest, most effective executives 

around, so it does not detract from his admiration for you, nor ours. 

To reiterate what he said just a minute ago, you do not seem to 

answer questions very completely or very accurately. 

[Laughter.] 
25 

Chairman KOHL. Which is part of your smartness and toughness. 

Would you agree with that, Mr. Bronfman? 

Mr. BRONFMAN. I would agree with almost anything you would 

say, Senator. 

[Laughter.] 

Chairman KOHL. You are pretty smart yourself. 

Mr. Grainge, we understand that you argue that we should not 

worry about this merger because illegal music downloading makes 

it practically impossible for record labels to raise the price of music 

when consumers can just go to illegal download sites they can go 

to and get music for free. However, in April of 2009, Apple iTunes, 

the Nation’s leading online music download service, raised its 

prices by 30 percent from 99 cents to $1.29 per single for most new 

releases. 

Despite this 30-percent increase, consumers continue to pay for 

the music. The number of singles downloaded actually increased 

from about 5 million per day in April of 2009 to over 9 million a 

day in January of 2010, less than a year later. All of these consumers could have obtained this music for free on illegal sites. 

Doesn’t the experience with the Apple iTunes price increase in 

2009 show that consumers will accept price increases for music? 

Mr. GRAINGE. Senator, the original launch price was exactly 

what it was supposed to be—a launch price. And it was something 

which Apple and Steve Jobs, who I got to know over a period of 

time, basically pulled out of the air. 

Over that period of time since the launch of iTunes, there was 

one price increase in a 9-year period. As part of that deal, Apple 

lifted the restriction of the digital rights management, which 

meant that the people who bought the downloads could share them 

and move them around their own devices. We increased the quality 

in the bits of the sound quality, and they also at the time went to 

variable pricing, and there were tens of thousands of tracks which 

also reduced in price. 

Chairman KOHL. Ms. Sohn, what is your view? Why would consumers pay 30-percent higher prices for singles on iTunes when 

they could just download the music from illegal sites for free? 

Ms. SOHN. Well, it is because there is absolutely no evidence and 

the proponents of the merger have not presented any evidence that 

piracy exerts any downward pressure on prices whatsoever. And 

the fact of the matter is last year alone consumers spent over $2.5 

billion on digital music, so that shows a real desire there to access 

music legally. So if piracy was a factor, why didn’t they just go get 

it for free? I mean, if consumers are willing to pay an average of 

$10.40 for a digital album, why would they suddenly resort to piracy if that price went up to $11. 

Mr. Bronfman’s company provided some numbers to the FCC 

showing that pirates are actually a really very, very small percentage of music buyers and that, if anything, what Mr. Grainge has 

to worry about are people that listen to the radio because they are 

the ones that really do not buy music. 

So piracy has had absolutely no effect on prices whatsoever, and 

nothing I saw in any of the testimony of the proponents showed 

otherwise. It is just hand waving. 
26 

Chairman KOHL. How do you respond to that, Mr. Grainge? Then 

Mr. Faxon. Mr. Faxon, you first? 

Mr. FAXON. Yes, I just think that we have to understand the setting in which this industry is. In the world of music, over the last 

decade plus, more than half of the sales of the industry have disappeared. And in that same period, a vast amount of music has 

been consumed through pirate sites and in illegal ways—some 

quasi-illegal, some quite illegal. So there has to be an inference 

that any logical person would take that there is a relationship between the pirate world and the legitimate world, and that consumer demand, consumers’ desire for music, has not declined. 

Their purchasing behavior has. 

And so price has something to do with purchasing behavior. It 

is our role, our job, to try and see whether we can find a way to 

entice consumers back into the marketplace and pay so that our 

artists get paid and that the entire cost of the industry gets—so 

there is a constraint, and some people clearly will go into the market and buy in only a legitimate way. But half the demand has 

gone—half the actual purchasing demand has disappeared, whereas consumption has gone up. So I think it is a little disingenuous— 

I would say it does not have any impact. 

Chairman KOHL. Ms. Sohn, do you—— 

Ms. SOHN. This one really deserves a response because the reason the revenue went down was because they were selling nothing 

but CDs, they were found guilty of price fixing by 43 States and 

the Federal Government, and they stopped selling singles. That is 

why—so your revenue went down because once you were found accused of—found guilty of price fixing your CD prices and then 

started selling singles again, people bought the singles. They did 

not want to buy ten songs they did not want for two songs they 

did. That is why revenues have gone down. But as everybody admits now, your digital sales are skyrocketing. It is just that—and 

both albums and singles. So that is why your revenues were cut, 

not just because of piracy. 

Mr. FAXON. I think one of the things that would be useful is to 

ask for corrections of the record after we do this because I think 

Ms. Sohn has misstated the history, and rather than take your 

time with arguing over that, it would be good for her to relook at 

her testimony and come back with a more accurate—— 

Ms. SOHN. Look at the report filed by Public Knowledge and Consumer Federation of America. It is all in there. 

Chairman KOHL. All right. Before we turn to Senator Lee, Mr. 

Azoff. 

Mr. AZOFF. Let me just tell you a quick story of how piracy impacts an artist. An artist I started with at the University of Illinois 

40-some years ago retired about 20 years ago. His earnings from 

his artist royalties and his writing and publishing were around 

$400,000 a year. Traditionally in the industry, that would go up 

every year. He came to see me recently. His earnings from this 

very active catalogue have dwindled to $68,000 a year. The only 

place you can point to is piracy, because the catalogue sold steadily, 

steadily, steadily, and the minute free music on the Internet came, 

it just fell off a cliff. 

Chairman KOHL. All right. Mr. Bronfman. 
27 

Mr. BRONFMAN. I would not sit here as someone who has run a 

record company for the last 17 years and say that piracy has had 

no effect. I think it has had some effect. But I would also agree 

that also another large effect is that when iTunes came along, we 

stopped selling albums and started selling singles. And so you had 

people interested in buying, but they were finally able to buy the 

song or two that they liked, not the 10 or 12 that we had forced 

them to buy in the album world. 

The reason I make that point is if a new startup came with a 

business model such as that that threatened the industry, which in 

some ways created risk to the business model, and you had half of 

the music controlled by one company, why would that company license a business that threatened the status quo, that threatened 

either its dominance or its business model? 

Now, the truth is that Apple has been a great thing for the U.S. 

economy, but it is not clear that, given what we know today, that 

a dominant company would have allowed an iTunes startup to 

occur, or the next one, because 6 years ago there was no Facebook, 

8 years ago there was no Google, 12 years ago there was no iTunes. 

We do not know what is coming next. And when you give one company the power to choose whether or not those businesses can even 

begin, I think it trips the line of reasonableness. 

Chairman KOHL. Senator Lee. 

Senator LEE. Thank you very much, Mr. Chairman. 

Before we proceed any further, I just wanted to point out that 

under almost any definition of the relevant markets that we could 

think of, I think most of us in the room would have to agree that 

this merger, if it proceeded, would result in a pretty significant degree of concentration. But we also have to remember that this is 

not the end of the analysis. You know, as Section 5.3 of the merger 

guidelines make clear, on page 19 of the 2010 edition, this is not 

the end of the analysis, and the merger can still proceed where 

other competitive factors counteract the potentially harmful effects 

of increased concentration. And so that is a lot of what we have to 

look at here. It is not a simple matter of just looking to whether 

or not it is going to result in increased concentration. I think that 

is pretty certain that it will. 

So with that in mind, Mr. Faxon, I wanted to ask you a little bit 

about EMI. EMI has passed through a number of hands in recent 

years. You know, for a while it was owned by the private equity 

firm Terra Firma, and then it was owned by a banking firm, 

Citigroup—neither of them giants in the music recording industry. 

Giants within their own realms, of course, but their specialty, their 

expertise, is not in music. 

So while the job that Citigroup has done, for example, is admirable, there are some observers who perhaps are excited to see EMI 

owned by a member of the music industry. 

So my questions for you are: First, what do you think music industry ownership for EMI might do for EMI? And then, secondly, 

how do you think revitalization of Capitol Records might affect the 

market? 

Mr. FAXON. I think obviously Citibank is not a natural owner of 

a music business. It has enough troubles on its own to consume its 

time. 
28 

What a music business needs, as Mr. Azoff said, is it needs stability because, remember, our product is not a disc. It is the output 

of human beings who need to be motivated and need to feel safe 

and protected as they pursue a very dangerous career. Think about 

yourself the first time you ever got up on stage and had to give a 

speech. 

Senator LEE. And I did not even have to sing. 

[Laughter.] 

Mr. FAXON. Right, and you did not have to sing. So what we lose 

in these events, in these discussions, is that we are talking about 

human beings and the lives of human beings. Our artists depend 

on us to be able to be with them and help them achieve the success 

that they dream about. That is what our job is. And with that 

comes a responsibility of being there for them as they develop. 

So one of the problems that has existed at EMI is that sense of 

instability, the sense that what is going to happen to that business 

going forward. So coming to a home where there is a stable environment, where the team that helps the artist develop their music 

and helps them find fans to love that music, are going to be with 

them for a while, is a huge—it is a massive improvement. And, you 

know, saying that is music to my ears to hear Lucian talk about 

trying to keep Capitol Records and build it back into the important 

label that it has been in the past, that is a fantastic thing, and the 

people at EMI are grateful for that. 

But consumers should be grateful for it because it is—it will be 

a creative engine. It will be a place—an engine room, and it will 

be a place where more music will be provided into the market. And 

we are in the innovation business. You know, think about it. Our 

product is new, creative works on a constant flow basis. That is 

what we are trying to bring in. If consumers do not like it, we do 

not do well. If consumers do like it, we do much better. It is as simple as that. And so it is a good thing to have a home that wants 

to create a stable base for our business. 

Senator LEE. So you are saying it will result in the creation of 

more creative material, whether the consumers like that or not. 

Mr. FAXON. I believe so, yes. 

Senator LEE. OK. Mr. Bronfman, let us turn to you for a minute. 

In 2009, EMI became a pioneer of sorts when it became, I think, 

the first major label to license its music without digital rights management, and that led, I think, to an industry-wide adoption of 

DRM-free music buying and selling. EMI was able to initiate a fairly significant change in the industry, even though it had only 10 

percent of the market at the time. 

So my question for you is: In a post-merger market, in a market 

following a merger between Universal and EMI, do you think Warner with, say, 20 percent of the market or Sony with 30 percent 

could perhaps be able to initiate a successful, sequential contracting process? 

Mr. BRONFMAN. Senator, I would like to answer that question, 

and if you do not mind, I would like to comment on the previous 

answer as well. 

Senator LEE. Sure. 

Mr. BRONFMAN. I think that the fact that EMI in the instance 

you mention or Warner in other instances or Sony or Universal in 
29 

other instances speaks to the importance of this competitive balance that currently exists. As the market becomes more concentrated, as one company essentially controls half of the hits and 

40 percent of the overall market, the ability for a third company 

to influence the outcome becomes smaller and smaller. 

I cannot say for sure that Warner could or could not, but, clearly, 

it will be less able to tomorrow if this merger is approved than it 

would be able to today. 

Senator LEE. Even with its own particular market share being 

unchanged from what it was. 

Mr. BRONFMAN. Yes, because essentially at 50 percent of the hits, 

Universal can do what it wants, period. Universal can say no to 

anything. And so, yes, sure, Warner can say yes to something, but 

at 50 percent of the hits, Universal can say no to anything. And 

I would just—— 

Senator LEE. Would you really phrase it as 50 percent of the 

hits? I mean, is that the right way to look at it? 

Mr. BRONFMAN. Well, it was last year. Some years it is even 

greater. 

Senator LEE. Right. But you are not necessarily saying that represents 50-percent market share, but—— 

Mr. BRONFMAN. No, sir. I am saying the overall market share is 

40-plus percent. A share of the hits is 50 percent. 

Senator LEE. We do not want to punish them for having a lot of 

hits, though. 

Mr. BRONFMAN. I complimented Mr. Grainge to Senator Kohl. I 

compliment the work that he has done. And I think if Universal 

were able to get to 42-percent market share through its own sweat 

and hard work, more power to them. 

Senator LEE. Maybe they should be required to send some really 

bad artists—I can help them find some. 

Mr. BRONFMAN. By the way, we both manage to find some really 

bad artists from time to time. 

[Laughter.] 

Mr. GRAINGE. We agree. 

Mr. AZOFF. I do not manage any bad artists. 

[Laughter.] 

Mr. BRONFMAN. No. You just wait for all the others to fail, and 

then you pick them up. 

So the notion here is that if a company can grow to whatever size 

on its own and does not abuse that market position, the Government should have no role in that whatsoever. But when a company 

is seeking to acquire a market-dominant position, Government does 

have a role. And in my view, Universal is trying to seek a marketdominant position, and I think this Committee should look at that 

and I hope would help the FTC to look at it and ultimately use its 

influence to see that this merger is not consummated. 

And just one quick point to Roger’s comment about finding a 

music home. I think the issue is less about ownership than it is 

about leadership. When my partners and I acquired Warner Music, 

Warner had traditionally been owned by Time Warner, which has 

many entertainment assets, media assets, one of the great media 

companies in the world. But music within that environment was an 

orphan. It was small within Time Warner. It was not that impor-
30 

tant. And the music division was very dispirited. Even under a private equity ownership that then came along with me, Warner succeeded much beyond what people thought originally, and we created a very successful company out of that. 

So I think the issue is not whether or not a music company needs 

to be in a music home. A music company needs to be with leadership that understands what it needs. And I think as Roger described the needs of a music company, I would agree with him. It 

needs stability, it needs sensitivity, it needs leadership. But that 

can come from many places. It does not necessarily only come from 

a larger music company. 

Senator LEE. And if you could point to any one metric that troubles you most, is it market share or is it the share of hits in recent 

years? 

Mr. BRONFMAN. It is market power, Senator. It is the power to 

determine the outcome of so many different things. 

You know, in the digital download world, hits are critical, and so 

Universal has a disproportionate weight and market power in the 

digital download world. But, interestingly, as the subscription 

world—Spotify—grows, what are we discovering. We are discovering that catalogue is actually much more important in that world 

than it is in the digital download world. EMI happens to control, 

thanks to the work of people for the last five decades, ten decades, 

one of the greatest catalogues ever amassed in human history. 

When you put that catalogue together with Universal’s catalogue, 

you have enormous market power in the streaming world. 

Senator LEE. But, of course, it is not about market power. It is 

not only about market power. You know, the question we have to 

ask is whether that market power manifests itself—whether it is 

wielded in such a way that it results in harm to consumer welfare. 

Mr. BRONFMAN. Senator, with all respect, that may be the question that you ask. My question is: If you grant a company market 

dominance by granting them the kind of market power that this 

transaction gives to them and then simply hope that they will 

wield that power responsibly, I do not think that personally is the 

right approach to antitrust policy. 

Senator LEE. OK. My time has significantly expired. 

Mr. AZOFF. Can I add one comment to what Mr. Bronfman said? 

Unless I am mistaken, Universal licensed Spotify first and Warner 

was the last one in, number one. 

Number two, when you talk about EMI’s catalogue, I also believe 

that, you know, what is the real worth of the biggest thing about 

the EMI catalogue is the Beatles. They were not on iTunes until 

recently. If you believe the printed reports, I believe the Beatles 

hold, you know, a big say if not a final say on anything that goes 

on digitally with that catalogue. I do not think that the digital 

rights to the Beatles flow in this deal as simply as everyone thinks. 

Thank you. 

Senator LEE. Thank you. 

Chairman KOHL. Senator Franken. 

Senator FRANKEN. Well, thank you, Mr. Chairman. A few things. 

First of all, I do not think, in all due respect to Mr. Azoff, I do 

not think that Universal was the first on Spotify. Am I right? 

Ms. SOHN. It was the third. 
31 

Senator FRANKEN. They were the third. 

Ms. SOHN. It was the third after EMI and Sony. 

Senator FRANKEN. OK. 

Mr. GRAINGE. We were in before Warner. 

Mr. BRONFMAN. Which makes my point, Senator. That makes my 

point, which is that in this competitive, dynamic world where you 

have four people supporting innovation all with different perspectives, innovation is going to survive and thrive much more than in 

a world where one person can determine the outcome. 

Senator FRANKEN. OK. I just wanted to make that clear because 

that was my understanding, and I just did not want that to stand. 

In terms of Senator Lee’s point on Citigroup and EMI, you do not 

think of Citigroup as nurturing, finding and nurturing artists, but 

Vivendi, I might say, was a water company, then a transportation 

company, and then it went into construction and waste management, and I do not think it was a media company until the 1990s, 

if I am correct. And, also, when I was at ‘‘Saturday Night Live,’’ 

General Electric bought NBC, and we were run by Bob Wright, 

who we used to call ‘‘a toaster salesman.’’ But he was one of the 

great chairmen of NBC. He did an unbelievable job. So, you know, 

let us not—— 

Mr. FAXON. Senator, I will be sure to tell Vikram that you think 

he would make a great executive in a music business. 

Senator FRANKEN. Well, I do not know him. I know Bob Wright 

and he did a great job. I do not know what point I was making, 

but I think I made it. 

[Laughter.] 

Senator FRANKEN. Mr. Grainge, I promised you a chance to respond to Ms. Sohn’s comment on Deezer, and I would also like you 

to respond to the quote I read in the Telegraph where you said, ‘‘If 

there was only iTunes providing digital music and they tripled my 

sales, I would be delighted.’’ 

This seems to undercut what I am hearing from you today about 

your desire—you know, you wish nothing more than to expand the 

universe of digital licensing deals. Can you explain that seeming 

contradiction? 

Mr. GRAINGE. I think that that quote was probably from 5, 6, or 

even 7 years ago. 

Senator FRANKEN. You have changed your mind on that? 

Mr. GRAINGE. Well, it is probably the last time I spoke to the 

Telegraph. 

Senator FRANKEN. Yes, but they have been—have they been able 

to hear your phone calls or anything like that? 

I do not know the British press. I am sorry. 

[Laughter.] 

Mr. GRAINGE. The contribution that Apple has made to the music 

industry over this last period has been incredibly powerful. We 

have since that time hundreds and hundreds and hundreds of deals 

worldwide, so in terms of the evidence of what we do and what our 

behavior is, I am actually very proud of, and we will continue to 

deliver our music to as many people in as many ways as we can 

in as many partnerships. 

You have also got to remember that in this game you want to 

keep as many people focused and optimistic about selling music. 
32 

And it is really important that we continue to sell our music in 

every form, as well as CDs and as well as, you know, what we call 

‘‘physical product.’’ 

Senator FRANKEN. Could you respond on Deezer in terms of how 

that—that also seems to kind of contradict the record on Deezer. 

Mr. GRAINGE. Yes, I am not aware of the Deezer specifics. I was 

aware that there was a problem in France. There are problems in 

our business every single day of the week. There is constant firefighting. There is so much disruption in the industry. There is so 

much disruption in the technology. And in some of the things that 

we are doing, we are making it up as we go along in the same way 

that the platforms are. And we are experimenting the whole time. 

Again, I think to highlight—— 

Senator FRANKEN. I wish I had a job as exciting as yours. 

That was a joke, too, everybody. 

[Laughter.] 

Senator FRANKEN. You see, it happens to us. 

Go ahead. I am sorry. 

Mr. GRAINGE. We have hundreds of deals. We manage some 80, 

90 operating companies in markets throughout the world. And to 

pick out two or three or four problems when we have the amount 

of music with the amount of contracts with the amount of people 

that we work with I think is actually unfair. 

Senator FRANKEN. OK, fair enough. 

Ms. Sohn, a ording to the American Anti-trust Institute, it took 

spotify 2 years to work out licensing deals with the four majors in 

the U.S. and this after having had incredible success in Europe. 

Sony and EMI apparently were the first two, right? Is that—— 

Ms. SOHN. Yes. 

Senator FRANKEN. OK. To step up to the plate, and it took several more months before Universal and Warner finally worked out 

an agreement. This also seems to refute Mr. Grainge’s point that 

Universal is a leader in cutting digital deals and he wants nothing 

more than to create these deals and create more digital platforms. 

Do you agree that Universal appears to have dragged its feet in 

that licensing deal? 

Ms. SOHN. Yes, absolutely. I mean, Spotify was very, very slow 

to come to the U.S. market. It is not yet profitable. In fact, it is 

quite unprofitable. 

I want to actually give you two more examples. I know I gave 

a laundry list before, but I think, again, they continue to be—it is 

more than two or three examples, Mr. Grainge, I am sorry to say, 

that Universal is the third of the four major labels to license its 

catalogue to Google Music. And with Zune, you know, Microsoft 

Zune, it took a piece of every single Zune that was sold. So that 

is another example of either excessive licensing, litigation, or taking a piece of the music service. And that control is not insignificant. I do not know the amount of the control because that kind 

of stuff is all under nondisclosure agreements, but, you know, when 

you have that kind of market power, it is not insignificant. 

Senator FRANKEN. Well, I really—I know my time has run out, 

but I would like Mr. Grainge to be able to respond to that. Is that 

OK, Mr. Chairman? 

Chairman KOHL. Sure. 
33 

Senator FRANKEN. Mr. Grainge. 

Mr. GRAINGE. We are trying to talk about the future of music, 

how fans can get music. To get into a he-said/she-said—and I cannot speak, and neither do I think any of us can speak, for the companies for which we are actually being told that this is what they 

said or this is what we did or this is how we behaved or operated. 

Senator FRANKEN. I think that what it speaks to is your businesses, your companies’ recent history regarding negotiations with 

digital platforms when what we are talking about here is your market power going to be so large that it disrupts that world. I think 

that is why we are discussing that, and I do not think it is just 

a he-said/she-said. I think it is relevant to our discussion. 

Mr. GRAINGE. Senator, I completely stand by everything that I 

have said, that we license, we embrace as many digital platforms 

and as many business partners as we can. And the sheer thought 

that we would constrict these platforms, that we would constrict 

who we sell to and how we sell and why we sell—if we do not sell, 

we go out of business. Most of these companies—we are not talking 

about nascent, small organizations. Some of these are bigger than 

the entire music industry combined. My artists will leave, jobs will 

go, piracy will continue to be rampant, and it is just not feasible 

that we will do anything else other—we have a duty and responsibility to the people that we sign, and I have got a duty to the people that we invest in as well. We make that investment. We have 

to sell, we have to create, we have to discover. And I hope you understand I feel very, very strongly about that. 

Mr. FAXON. Senator, I just wanted to add one additional thing. 

The discussion of the length of time of negotiation, we are talking 

about breaking new ground. The music industry is at the forefront 

of where technology is taking our marketplace. It is the pioneer. 

One has to walk that path very carefully. One has to understand 

all of the nuances and elements that go into those decisions. 

Spotify is an interesting thing. It is a service that says: Here is 

all the music in the world, take your pick, and do not pay anything 

for it. And maybe—maybe—if you have these other mobile services 

and other things attached, we will get you across the border to pay 

for that. 

Senator FRANKEN. It has advertising. 

Mr. FAXON. Yes, well, they have some advertising. If you have 

been on, you know. But the proposition was free leading to a pay 

tier. No one had ever done it. You did not know what the outcome 

was going to be. And you are setting a structure for a future. So 

you do that carefully. 

But this industry has come forward and done those things. It has 

done things that for many people would be inconceivable 5 years, 

10 years ago. So the fact that it takes 5 or 6 months or a year or 

whatever it takes to get there, the fact that we have demonstrated 

that we get there is something I think is the point to take away 

from this discussion. 

Now, I would ask Edgar why he has not gone along with Google 

Music, why he has not done those things, because I think he has 

been more likely to be the last person in. 

Senator FRANKEN. Well, my time has expired. Mr. Chairman, I 

would turn it over to you and your judgment. 
34 

Chairman KOHL. Thank you, Senator Franken. 

Senator Klobuchar, do you want to make a comment or two? 

Senator KLOBUCHAR. Well, thank you very much, and I am sorry 

for leaving, but as Senator Franken knows, we have had floods in 

Duluth, we had the farm bill, but I also know that we are also the 

home of many great musicians, including Bob Dylan and Prince, as 

well as many other successful bands like the Jayhawks, the Replacements, and Soul Asylum, just to name a few. And so I thought 

I would quickly come back to ask a few questions here. 

Now, I know some of this hearing has focused on market shares, 

competition, prices, and other economic dynamics, but I think it is 

also important to consider what the impact might be on music 

itself, especially given my State. I guess I can just ask all of you 

this. How do you see how the merger would affect music being 

available to the public, and whether it allows more bands to get in 

and out to the masses and more sounds, or whether it has the opposite effect or no effect at all? 

Ms. SOHN. Well, I will start. Thanks for that question. So four 

to three means less choice, and not just less choice for consumers 

but less choice for artists as well. I think a great example here is 

Katy Perry, who was against the merger and now all of a sudden 

is for the merger. Funny how that happens. But she was rejected 

by Universal, and she went to EMI, and she loved EMI. So you 

take EMI away, that is just one less place that an artist can go to. 

As far as consumers are concerned, our concern is that if you put 

so much power in one company with must-have music, that they 

will be able to dictate the terms and dictate the survival of every 

new digital music service out there. And that is not good for consumers either because those services lower prices for consumers, 

give them more choice, and are generally to their benefit. 

Senator KLOBUCHAR. Thank you. 

Mr. Bronfman. 

Mr. BRONFMAN. Thank you, Senator. Just to say I do not know 

whether past is prologue or not, but in the three mergers that have 

occurred recently—well, two mergers and a restructuring that occurred in the music industry recently—the Universal/Polygram 

merger, the Sony/BMG merger, and the Warner restructuring—I 

was involved in two of those three, Universal/Polygram and the 

Warner restructuring. In all three of them, the artist roster postmerger or restructuring was reduced somewhere between 30 and 

40 percent. So there were 30 to 40 percent fewer artists remaining 

on the artist roster at Universal once it acquired Polygram, about 

30 to 40 percent fewer artists at Sony/BMG when they were 

through merging, and about 30 percent fewer artists at Warner 

when we were through restructuring. 

So, again, I cannot speak to what is going to happen at Universal/EMI, but if past is prologue, you know there is going to be 

less music, not more. 

Senator KLOBUCHAR. Mr. Faxon. 

Mr. FAXON. I do take Edgar’s point. I think there has been in 

restructurings and mergers certainly reductions in rosters. But I 

think this is somewhat of a different case. EMI went through a 

very difficult period several years ago under the ownership of Terra 

Firma private equity company. The roster was completely—was 
35 

virtually decimated. And over the last 2 years, we have rebuilt that 

roster, and it is an extremely effective one. And what Lucian has 

been very clear with our staff and with us is that his aim is to continue to build beyond that. 

So we do not start with a fat, uneconomic roster, which is why 

rosters are reduced. If you have successful artists, you do not cut 

them out. You cut the ones that are not doing well. We are not in 

that situation. We are in the building mode. And I think our track 

record at the moment is extremely good. 

So I take—Lucian will speak for himself, but I would take his 

word for it that he is going to invest more and increase the amount 

of artists on our roster. 

Senator KLOBUCHAR. OK. Do you mind if I go on or do you want 

to answer as well, Mr. Grainge? 

Mr. GRAINGE. Yes. 

Senator KLOBUCHAR. OK. 

Mr. GRAINGE. As I have been saying, Senator, for EMI, more investment, more music, more choice for consumers, more platforms, 

and I think the point that Roger made is absolutely spot on. Labels 

fight to keep successful artists, and also you fight to keep and nurture artists that you believe in that can be the successful ones of 

tomorrow. And I said it actually in my opening statement. The 

company is on a really much greater sounder footing than it was 

probably 18 months to 2 years ago, and I am absolutely determined 

to build on the success and on the platforms, the music platforms, 

the artists that are signed within the company, to take them to the 

next level and to take all the stakeholders in the entire creative 

process to the next level and give them certainty and give them 

support and give them investment. 

Mr. AZOFF. I think from the management perspective, artists will 

be happy that EMI is going to be in a period of spending more, but 

also in the independent sector, which has been growing, a Calvin 

Harris at Ultra Records, a Jason Aldean at Broken Bow Records, 

Joe Walsh last week with a number 12 debut on Concord Records, 

that, you know, having less majors will embolden artists to take 

more shots with independent labels, and I think it will cause independent labels to take more risks also. 

Senator KLOBUCHAR. The second and last question I will ask, 

and I will put some more in the record, is just how this merger 

could impact retailers. Why do I care about this? We are the home 

of Target and Best Buy in Minnesota, and I care about it for our 

customers as well. And there are some that say that this could significantly impact negotiations with physical music retailers that I 

think are very important to the music business and had a hard 

time in recent years, and then others say that obviously they believe it would not have any effect on negotiating leverage. And if 

you could, maybe just one person on each side could give me an answer to that. Mr. Grainge. 

Mr. GRAINGE. If we do not have strong, committed music retail, 

then the physical music market will disappear even more than it 

has done. There are no small Mom-and-Pop kind of stores. So many 

of the individual specialist chains have unfortunately gone out of 

business. If we do not sell to them, if they do not carry our music 

on their shelves, then we will go out of business. So we are abso-
36 

lutely desperate, whilst this market is still as high as 50 percent 

on physical, to do whatever we can to support the Targets and the 

Best Buys. 

Again, I feel very strongly about that. 

Senator KLOBUCHAR. Thank you. 

Mr. Bronfman. 

Mr. BRONFMAN. Yes, so Lucian keeps saying how much he wants 

to support both digital and physical retailers, and I have no doubt 

that that is true. I think the issue is on what terms. And, again, 

with Universal having the market power that it does, it obviously 

significantly increases its negotiating power with WalMart, with 

Best Buy, with Target. It will seek and will receive, as it has in 

the past in other circumstances, a disproportionate share of promotional opportunities, a disproportionate share of those companies’ marketing dollars, et cetera. 

So it is not that I think a Universal/EMI would fail to support 

a WalMart, a Target, or a Best Buy. It is what happens in that 

support and how WalMart, Best Buy, and Target allocate their dollars to the small amount of music sales that they have currently. 

I think that is the issue, and that will result either in less sales 

for Warner and Sony or higher prices for consumers, or both. 

Mr. GRAINGE. Can I just, if you do not mind, Senator? 

Senator KLOBUCHAR. OK. 

Mr. GRAINGE. That is not the business world I live in. The sheer 

thought that we can have retailers stock something that people will 

not go in and buy and take it off their shelves is insanity. So we 

have to provide music to them, and they will only take music that 

they think that they can sell; otherwise, they will sell Pepsi-Cola 

or they will sell something else, and they will move on. 

Mr. BRONFMAN. But to be clear, I am not suggesting that that 

music will not be on the shelves. All I am saying is one has to 

think about the terms on which it got on those shelves and the 

terms on which other music that also would like to be on the 

shelves has to take as a result. 

Mr. FAXON. But can I say, let us understand, Best Buy and Target—music is a very small part of—if you take WalMart, Best Buy, 

and Target, music represents less than 0.3 percent of their turnover. If we as an industry or even a significant player try to raise 

prices in a way that is not going to benefit—is going to reduce demand and, therefore, reduce turnover per square foot, what is 

going to happen? It is a very simple thing. And so they will resist, 

and we have to supply at the terms that they will accept. And we 

are looking—these stores, they look at their square footage and 

say, ‘‘What is my turn? What is my profit retention? ’’ And if music 

is not providing it, they put something else in. We know that, because shelf space has vastly reduced in our industry. And our 

prices in the physical world have declined, and they continue to decline even to this day. So I think this is a red herring, frankly. 

Mr. BRONFMAN. If I could just say, I think I agree with much of 

what Roger said. It is just that he did not respond to anything that 

I had said. I did not talk about Universal/EMI raising prices. I simply said that in terms of how much marketing dollar Target allocates to music, more of that music allocation will go to Universal/ 

EMI. In terms of the floor space that they allocate to music, more 
37 

of that floor space will go to Universal/EMI. In terms of the merchandising dollars that they allocate to music, more of that will go 

to Universal/EMI. I think that is inevitable and absolutely true. 

Senator KLOBUCHAR. OK. Well, thank you very much. I had some 

other questions on digital distribution and other things that I understand have been asked, and so thank you and we will submit 

some more questions for the record. I appreciate all of you being 

here and thoughtfully answering these questions. 

Thank you. 

[The questions of Senator Klobuchar appears under questions 

and answers.] 

Chairman KOHL. I just have a brief question and maybe a single 

question from my colleague. 

Mr. Faxon, if EMI is profitable and its prospects are very strong, 

as you said last year, then why should it be sold to its top competitor? How is that in the public interest? 

Mr. FAXON. Well, it was not really put to me that way. What was 

put to me was that Citibank felt that it should put the business 

up for sale, and it is Citibank’s obligation for its shareholders—and 

the U.S. Government is one of those—to sell it at the best possible 

price. And Universal came forward with the best possible price 

and, therefore, it is the owner. 

Chairman KOHL. Yes, I understand that as a business proposition, but in terms of the public interest, which is what the FTC 

is looking at right now, if your business is profitable and growing 

in the public interest—which is not the only interest to be considered—why should we sell it to your top competitor? 

Mr. FAXON. I do not think—pardon me if this is sort of splitting 

hairs. I do not think it is not in the public interest. In other words, 

the word ‘‘anti’’ in ‘‘antitrust’’ implies to me that it is a bad thing 

for it to happen. I do not think it is a bad thing to happen. There 

are many scenarios that I could map out which I think would be 

good things to happen, but none of those are available. And so this 

is—I do not think this transaction is a bad thing. 

Chairman KOHL. How are you going to profit personally in the 

event that this goes through? 

Mr. FAXON. I am going to lose my job. 

Chairman KOHL. In a comfortable manner? 

[Laughter.] 

Mr. FAXON. I hope so. 

Chairman KOHL. All right. Finally—and then Mr. Lee—Mr. 

Bronfman, would it be in the public interest for this deal in its current state not to be done with Universal but, rather, to be done 

with Warner? 

Mr. BRONFMAN. I think it is not in the public interest, Senator, 

for this deal to be done with Universal. I think any other deal will 

receive its own scrutiny, but on the face of it, the largest company 

in the industry becoming this much larger is wrong and it is not 

in the public interest. 

Chairman KOHL. Senator Lee. 

Senator LEE. I just have one more question. This one is for Mr. 

Azoff. 

We have had a lot of discussion today, Mr. Azoff, about market 

power, and I just wanted to give you a chance to sort of wrap up 
38 

on this one. Tell me, in your opinion, will the consolidation of Universal with EMI likely bring about a set of market conditions that 

will result in harm to consumer welfare, for instance, in giving the 

new combined merged company the power to dictate prices, to determine the fate of new distribution channels, or the power to 

dominate and potentially foreclose sequential contracting arrangements? 

Mr. AZOFF. I think their power will be virtually the same as if 

the transaction did not go through, and, again, I would like to just 

say we are kind of riding a big wave across the business that will 

have far more impact than this merger possibly could. 

Senator LEE. Thank you very much. 

Chairman KOHL. We thank you all for coming. It has been an interesting hearing, and I think it has cast a lot of light on this deal 

and on your industry. Your journey has been fruitful, and we appreciate your coming. 

Thank you so much. 

[Whereupon, at 4:37 p.m., the Subcommittee was adjourned.] 

[Questions and answers and submissions for the record follow.] 
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