How the Universal-EMI Deal Will Change the Music Industry

If approved, deal would leave just three major labels

Chris Ratcliffe/Bloomberg via Getty Images
A vinyl LP for 'Dark Side of the Moon' by Pink Floyd, a band signed to the EMI music label
By |

A little more than a decade ago, there were six powerful major labels. Now, with the sale of EMI's recorded-music division – home to the Beatles, Pink Floyd, Coldplay and Katy Perry – to Universal Music Group for $1.9 billion, the record industry will be reduced to just three. The deal is pending regulatory approval from both U.S. and European agencies – but if it is approved, just one label, Universal, would control more than a third of overall sales, leaving many in the industry nervous about its clout. "It's going to be damaging in the end," says a veteran major-label executive. "There's going to be another whack-down of artist rosters. It happens again and again. How can artists and their managers fight for priority attention? It's tough."

EMI is the latest victim of a decade of severe record-industry contraction. Labels peaked in 2000, selling more than 785 million albums, but Internet piracy and the shift from high-profit CDs to low-profit digital singles have forced thousands of label layoffs and drastic artist-roster cuts. At the same time, new power centers have emerged in the music business, including Live Nation, the concert behemoth that merged with Ticketmaster last year; Apple, which has grown into the biggest music retailer; and a new generation of do-it-yourself artists, from Radiohead to Wilco, who have left the majors behind.

The purchase by Universal, the group that controls labels including Interscope and Def Jam, will make the planet's largest label more dominant than ever. The company's market share is set to expand from roughly 27 percent of worldwide music sales to 36 percent, compared to Sony's 23 percent and Warner's 15 percent. Proponents argue that Universal's powerful distribution network will give EMI artists greater international reach, while EMI's Nashville label, whose artists include Keith Urban and Brad Paisley, will help Universal address its weakness in country music. "It'll give artists signed to EMI an opportunity for growth while at the same time allowing Universal to put out more music than ever before," says a source with knowledge of the sale.

"It's a big deal," adds former Sony and Warner executive Steve Greenberg, now chief executive of independent label S-Curve Records. "If fewer players have the ability to be strong companies, that just may be the only system that's viable for the time being."

Sony has been making aggressive moves as well. Doug Morris, who grew Universal into the top major, took over the label in July after 15 years at Universal. Notoriously competitive, Morris recently signed producer Dr. Luke to run a new imprint, Kemosabe. In addition to locking up Luke's hitmaking talents, the deal prevents him from working with non-Sony artists (including his main collaborator, EMI's Katy Perry). Sony has also offered $2.2 billion to buy EMI's publishing division, which owns the copyrights to 1.3 million songs, by Rihanna, the White Stripes, Sting and others – and may end up being more lucrative than the labels Universal bought. "He's taking out his proven playbook and going at it again with a real fervor," a source says of Morris' deals. "It's classic Doug Morris."

Despite competitors' fears, the deal at least gives EMI a future, which had been uncertain for a decade. Private equity firm Terra Firma Capital Partners bought it in 2007, but when it defaulted on a $5.4 billion loan, Citigroup took over the company earlier this year. "How effective was EMI in signing new artists the last few years?" says the source with knowledge of the sale. "They said in their own statements they've slashed A&R."

Both the label and publishing sales are expected to be approved in eight to 10 months. In the meantime, EMI executives have said they plan no short-term layoffs – although eventual staff cuts are all but inevitable, as the combined companies eliminate redundancies. "We've been assured that the commitment and investment will remain," says Caroline Prothero, manager of EMI dance-music star David Guetta. "I want this situation to allow new artists to come through, and I want the people that have worked with us to keep their jobs."

The Beatles will sell millions no matter which label owns their catalog, and Perry and Coldplay have nothing to worry about. The fate of smaller artists is more uncertain – several managers of well-known EMI artists tell Rolling Stone they are concerned about what will happen to their clients' upcoming records. "There's going to be nothing left of EMI," says one music-business source. "Which means smaller rosters, less artist development."

But given the reduced power of the majors, many in the business are surprisingly unfazed. "It's just another merger,"says Bob McLynn, who manages acts from Train to Hole. "You have to work with your artist and soldier on and not worry about the surroundings."

Related
Universal Music Group Purchases EMI Music
Bids for EMI Much Lower Than Expected

This story is from the December 8, 2011 issue of Rolling Stone.

From The Archives Issue 1145: December 8, 2011