Universal Music Group is the largest of the four major record companies, and its proposed purchase of EMI Music would make it even larger. With piracy rampant and a handful of big retailers responsible for much of the remaining sales, Universal argues that there's no harm in letting it swallow up EMI, by far the smallest of the major labels in the United States. But the online music stores and services such as Spotify that are helping the industry regain its footing could be harmed if the merger lets the newly combined companies command disproportionate licensing fees. That's why regulators should approach the deal with caution.
With CD sales in free-fall, the record companies' future clearly rests with new digital formats, mobile devices and business models that focus on generating revenue from listeners who don't necessarily want to pay 99 cents per song. Meanwhile, the barriers to entry into the music business have been obliterated, and artists no longer need the ministrations of a label to record, distribute and market their work.
One thing that doesn't seem to be changing, though, is the major companies' dominance when it comes to distributing the most popular music. Last year, all of the songs on Billboard's annual Hot 100 chart were distributed by the majors, and more than 90% of the songs played on the radio were major-label releases. As a result, the online and mobile companies that are replacing the Tower Records of yore still need the major labels' libraries to succeed. And they have to negotiate with the labels for the rights to the songs they want to sell or stream on demand.