Music execs sing hallelujah at EMI/Warner breakdown

A chorus of cheers arose from rival music industry executives last Thursday after the failure of a bid to create one giant company that would have put Madonna and the Beatles under one roof.

“I’m very glad the EMI/Warner merger is off. It’s better for our industry, artists and consumers,” said Tess Taylor, President of the National Association of Record Industry Professionals.

Britain’s EMI Group Plc and New York-based Time Warner Inc. unit Warner Music announced on Thursday that they had dropped plans for a $20 billion music joint venture in the face of pressure from European regulators.

“Just imagine if 90 percent of the world’s music copyrights were under one roof, which would have been the case had the EMI/Warner deal gone through. That’s such an imbalance in the marketplace that it’s frightening,” Taylor said.

Both companies pledged to keep talking to revive the deal to make it acceptable to the European Competition Commission, which had concerns over the loss of one of the world’s five “major” record companies.

Sources said rival giants such as Walt Disney Co. and Seagram Co. Ltd.’s Universal Music had lobbied strongly against the deal. EMI and Warner Music offered concessions last month and this week offered to divest Virgin Music and Chappell Music.

But in the end, industry experts believe Warner sacrificed the EMI deal to win clearance for its $135 billion pending merger with America Online Inc., the world’s biggest online services company.

Both Warner, with artists like Eric Clapton and Madonna, and EMI, home to the Beatles, have struggled in recent years. EMI ranks fifth in terms of U.S. Sales, has been subject to several management shake-ups and has long been a takeover target. Many expect other bids for EMI to soon emerge.

Warner, now fourth in U.S. sales, once led the market and was considered the ultimate artist-friendly record company. But much of that sensibility eroded with a mid-1990s restructuring that alienated many big stars as legendary executives like Doug Morris and Mo Ostin were forced to leave.

Meanwhile, the music industry is still reeling from the mega-merger of Seagram Co Ltd. and PolyGram, which eliminated thousands of jobs and hundreds of recording acts.

“It’s extremely disruptive when you have all these companies merging together. It’s very hard for artist development because everybody’s trying to get product through a system that’s clogged,” said Allen Kovac, Chief Executive Officer of Beyond Music, an independent label.

Experts said such mergers have robbed music companies of their creative flow as they struggle to meet Wall Street forecasts instead of concentrating on artist development.

“The big record companies are in the business of quick returns. That’s why we’re seeing a proliferation of rap and teen music. It’s the lowest common denominator to make the quickest returns with the least amount of expense. It’s no longer a creative business,” Kovac said.

Kovac said his label has benefited, billing $ 50 million over the past two years, because it has picked up “great” artists who were no longer being supported by big companies.

“We picked up Blondie from EMI, and put out their ’No Exit’album, which sold 1.4 million units worldwide,” Kovac said, adding that Beyond also produced a best hits album for Motley Crue, formerly on Warner’s Elektra label, which went on to sell 700,000 units.

“The fact that Beyond has done $50 million in its first two years is based on our ability to work with these artists who would not have been available without consolidation,” he said.

The music industry is also in turmoil amid competition from distribution channels like Napster, which has a service that lets fans swap songs for free by trading MP3 files.

Warner, EMI and the other major record companies are fighting a landmark court battle to shut down Napster as they scramble to find equally appealing distribution models to entice online music fans.

“For consumers (the end of the EMI/Warner deal) is good news and bad news. There’s more competition to keep prices down but in terms of digital distribution, it means there will be five different venues and five digital rights management solutions and more confusion,” said P.J. McNealy, senior analyst for the Gartner Group. Industry experts also said consolidation in the music market has created barriers for anybody seeking music licenses at competitive prices.

“In the past, majors used to license masters more freely for compilations, but we’ve found in the last 12 months, it’s been a lot harder to get licenses,” Kovac said.

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