Does A Merged Sony BMG Hurt The Indies?

If indie label associations like Impala are to be believed, the market -- and especially consumers, since their well being is the basis of antitrust regulation -- is worse off then before the Sony BMG merger in 2004. If we look at the album market share as an indicator of control in the recorded music industry (these numbers are only for the United States), it is clear that the merger has left the combined company with a weaker market position. (There is much more to the story that just album sales, but for the sake of this argument I will use only market share based on album sales. Digital downloads were in too much of an infancy stage in 2004.)

The Sony BMG merger was completed on August 5, 2004. The week before the merger, Sony's market share was 13.76% and BMG's share was 16.02%. The pre-merger combined album market share was 29.78%.

Six months later in February 2005, before any of the control and operational benefits would normally have time to kick in, Sony BMG's market share had dropped to 26.45%. Remember that the combined company had some integration problems.

Six months after that, in August of 2005, Sony BMG's album market share had dropped to 25.66%. By Christmas 2006, its share has dropped to 25.32%. (Note that very slight drop between August 2005 and December 2006. If you believe the company's rootkit problem hurt its market share, think again. Sony BMG's rootkit fiasco hit in November 2005 and appears to have had a negligible impact on market position.)

Sony BMG's current album market share is 21.76%. Again, the pre-merger combined share was 29.78%, a full eight points higher than where it stands today. Indies have gone from 17.58% in August 2004 to 20.55% today. (A sliver of that increase can probably be attributed to some majors' acquisition of labels, such as Roadrunner by Warner Music Group, during that time span.)

The reasons for Sony BMG's share erosion could range from poor releases to poor management. Regardless, it is clear from these numbers that the merger of Sony BMG has actually been beneficial to the U.S. market shares of its competitors.

An Impala presentation (read PowerPoint file) lists a strengthened "situation of collective dominance," "high barrier to entry" and "few incentives to compete on price" as some of reasons for its objection to the merger. Impala believes "increased concentration impedes market access" and "reduces consumer choice," and that music risks being devalued (because of bundling). The market decline is blamed on majors' behavior and their short-term vision. Impala predicts marketing costs and bidding prices for artists will increase. Oh, and here's the clincher: It will be easier to collude.

That "collusion" has helped transfer part of Sony BMG's market share to indies and the other three majors. Before Impala predicts the worst, it should reflect upon the numbers and recognize the industry's increasingly level playing field.


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