Impact of UMG and EMI merger on minority recording artists

Today the Senate Judiciary Antitrust Subcommittee is holding a hearing to air concerns about the proposed purchase of EMI’s recorded music business by Universal Music Group. Congress, regulators and industry analysts are increasingly questioning this merger, and rightly so: the potential impact on competition in the music distribution marketplace – particularly the development of Internet distribution channels – and the overall effect on consumer choices are portentous.

But while these important questions are being investigated, the impact of the proposed merger on compensation for minority and other artists has yet to receive the consideration it deserves. For decades, minority and other artists have suffered from the lack of meaningful choice in the recording industry, and had to accept “take it or leave” deals to bring their creative output to the marketplace – deals which more often than not left these artists holding the bag for never-ending production costs while the recording labels reaped millions in profits.

To appreciate what’s at stake, one has to first understand how the recording business works:  Artists sign recording contracts with record labels, whereby they assign ownership of their music in exchange for the payment of royalties from record sales. However, these one-sided deals place responsibility for the costs of production, marketing and distribution on the artists, not on the record label. The result is that the artist’s royalty accounts are perpetually in the red, to the tune of hundreds of thousands – sometimes even millions – of dollars.  It typically takes decades before any royalties become due to the artists, despite the fact that in many cases, the label breaks even on the project in the first or second year.

Adding to this, major labels have had a less than stellar record for actually paying artists. Record labels have held on to royalty payments or claimed difficulty in locating an artist, and then raised the statute of limitations to avoid payment when artists or their heirs eventually bring suit for the monies owed to them.    

For example, in 2004, then-New York Attorney General Eliot Spitzer investigated several major labels after receiving complaints from artists that the major labels had not been paying artist royalties. The companies’ excuses for non-payment included having “bad addresses” for artists or “not really paying close attention.” The eventual judgment required the major labels, including EMI and Sony, to set aside some $50 million for back royalty payments, and to attempt to locate and pay artists or turn unpaid royalties over to the state as abandoned property.  Eight years later, however, the labels are still not making meaningful efforts to pay artists, and even continue to raise the statute of limitations as a legal bar when the artists or their heirs try to collect their money.

In the past decade, the major labels have gobbled up most of the indie labels (and even each other; Sony bought out Bertlsmann/RCA after their merger). The result is a tight oligopoly with only four major industry players left: Sony, Universal, EMI, and Warner. Not only does this leave artists with little negotiating power, but it also increases their difficulties in collecting their royalties. When the post-merger monoliths blend accounting systems and reduce personnel, it’s the artists who get lost in the shuffle.  

Another reduction in the number of major labels will affect more than artists’ ability to collect royalties or obtain fair recording deals. And let’s not forget the major labels have a solid track record for blocking access to their catalogs to digital distribution start-ups, independent film and video producers, and new media businesses, by either pricing them out of the market with excessive licensing fees, failing to respond to licensing requests, or just refusing to deal.     

But perhaps the greatest threat is the merger’s potential for revitalizing a system of inequity just as Internet distribution possibilities are shaping the keys to the shackles of industry exploitation. If the recording industry is to be rebuilt, it should be rebuilt on the tenets of artist dignity, not on antiquated constructs that should be dismantled once and for all.          

Rosario is an entertainment attorney and artist rights advocate practicing in New York and Washington, DC; Mtima is a law professor at the Howard University School of Law and the director of the Institute for Intellectual Property and Social Justice in Washington D.C.

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