Say What? IMPALA's Patrick Zelnik Switches Sides To Support UMG/EMI Deal

Patrick Zelnik

No sooner had indie label trade group IMPALA released a statement reaffirming its opposition to UMG's acquisition to EMI, than IMPALA Co-Pres. PATRICK ZELNIK wrote an editorial in the FINANCIAL TIMES, asserting that "A UNIVERSAL/EMI merger could rescue the music business," reports MUSICWEEK.

"For 12 years at IMPALA ... I have fought concentration in the music industry," he wrote. "However, as UNIVERSAL MUSIC awaits regulators’ verdict on its £1.2bn bid for EMI’s recorded music division, I think it could be just what the sector needs ... as I contemplate EMI’s fall from grace and the way it was ravished by private equity, I can see that in the right circumstances this merger could create a more competitive industry, while offering stability to EMI’s artists."

ZELNIK then echoed a point made by UNIVERSAL MUSIC CHAIRMAN/CEO LUCIAN GRAINGE. that "compared with APPLE, GOOGLE and FACEBOOK, all music companies are small - and independents minuscule." He suggested that the "digital giants" increase the revenue they provide to the music industry, while the industry re-connects with a "generation: that has essentially stopped paying for music.

"This can be done if the UNIVERSAL/EMI deal serves as a model, giving entrepreneurial platforms access to label repertoires on a non-discriminatory, transparent basis -- in return for a commitment to direct traffic towards legal and affordable services," ZELNIK wrote. "None of this should deprive Universal of power in the digital marketplace. A combined UNIVERSAL/EMI can play a huge role.

"Moreover, we can use UNIVERSAL’s acquisition as a model to create online competition that reflects music retailing when it was healthy -- when specialists, independents and mass merchants had easy, non-discriminatory access to all repertoire. Emulating this online could give a huge boost to digital sales, streaming options and choice."

He also set certain conditions for the UMG/EMI deal::

* The combined UNIVERSAL/EMI label must adhere to "non-discriminatory, easy licensing to new platforms" and actually coming together with the independent labels - which  would "encompass UNIVERSAL, EMI and independents representing the majority of the market -- the rest would soon follow".

* Any divestments made by UNIVERSAL to get approval for the EMI deal -- possibly the sale of VIRGIN RECORDS (see story below) or PARLOPHONE -- should be sold to the independent label sector, rather than the financial world.

ZELNIK realizes that his sudden reversal is certain to ruffle feathers at IMPALA and the U.K.'s indie label lobby, AIM. "Some will disagree with this," he admitted. "Yet SONY has suffered from its refusal to find a solution to the challenges of the digital age: it is now no larger as a merged entity than it was before it acquired BMG and JIVE. The independents’ opposition to past mergers led to pension funds and private equity overpaying and in some cases mismanaging assets. The consumer lost and the pirates won.

"Today, we can change this," he concluded. "I call on all sides to create a new pro-growth industry forum -- without the vested interests of the current bodies -- to balance the market between majors and independents and ensure that content owners, creative entrepreneurs, artists and consumers all benefit from the opportunities created by the Internet. I call on regulators to bring UNIVERSAL and the independents to the table to redress competition concerns and show the world they are capable of vision in transforming troubled industries."

BUSINESSWEEK reports that just yesterday, the members of an IMPALA board meeting voted to keep opposing UMG’s purchase of EMI, citing competitive issues in digital and physical markets as well as "access to media exposure for new artists, as well as the foreclosure of independents when it comes to signing artists."

Its statement continued: "IMPALA agrees that digital companies are giants and need proper regulation, but the problem is that excessive concentration in the music sector would help UNIVERSAL mold services towards its own interests and obtain more than its fair share of exposure."

Bottom line: It remains to be seen how all this will influence the EUROPEAN COMMISSION, whose deadline to decide on the deal is SEPTEMBER 6th

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