How the Federal Government Protects Consumers in Technologically Doomed Markets

Gary North

April 4, 2012

"Government is dumb." That was a motto that Howard Ruff used to espouse. It made sense to me.

We see this in government policies to prevent monopolies in shrinking markets. It makes mergers illegal in industries that consumers are abandoning. Why intervene? Officially, to protect consumers. Actually, to gain more control, hire more people, and get promotions.

Here is a recent example. This was posted on Politico. That is where it belongs. It is all about politics.

Universal Music wants to buy the EMI music company for $1.9 billion. There are organizations loudly protesting this. They have appealed to the Federal Trade Commission to stop it. Why? The only reason that I can think of is to save the boneheads at Universal Music from buying what is clearly a mastodon in the tar pit.

Note: Universal Music is run by a man named Max Hole. I am not making this up.

Why should anyone care if Universal wants to own EMI? EMI produces records. As in CD's. As in trademarked music. As in obsolete.

I love this:

They have been telling lawmakers and regulators in Washington recently that a combined Universal/EMI could have too much leverage in negotiating for radio airplay and store promotions, as well as in dictating terms of digital deals with the likes of iTunes, Spotify and future platforms.

Radio airplay? When was the last time you listened to pop music on a radio? When driving in your car, maybe, because you can't stand talk radio. When did you last pull over to the side of the road to write down the name of some artist and song that you just heard on the radio? The next time will be my first.

When was the last time you walked into a store to buy a CD? I remember my last time. I bought a copy of the sound track of O Brother, Where Art Thou?. That was in 2000. From then on, I bought online. Nobody needs a record company to sell his CDs on-line.

Merging Universal's 33 percent with EMI's 10 percent share of the U.S. market would give the combined company a 43 percent market share in the U.S., IFPI figures show.

Universal/EMI's clout would be even greater in some music segments -- 51 percent of the Billboard Hot 100 for 2011, 60 percent of rap and 45 percent of Latin, country and R&B music -- according to statistics compiled from Billboard and Nielsen SoundScan for opponents of the deal.

Meanwhile, 20 million kids are downloading free music. Do they care what percentage of this free music is controlled by Universal? No. "Just keep it coming, guys."

But critics are outraged at what Universal proposes.

What it will do is create a super-major that will have far too much power," Bronfman said. "I think when Universal goes up over 40 percent market share, I don't see how reasonable regulators can countenance. It will impact not just labels but artists and cultural diversity. … Warner is going to fight this tooth and nail, and I hope others will join us."

Impact cultural diversity? When YouTube is free to anyone to post his music? When iTunes is where anyone can sell her music? When no one goes into a record store? Where there are no record stores?

Meanwhile. . . .

Around 13 percent of Internet users download songs from file-sharing services and only 37 percent of music is legally acquired , according to market research firm NPD. And the recording industry is half the size it was compared with 1999 -- when Napster was born -- falling from $14 billion in 1999 to $7 billion in 2011, according to the Recording Industry Association of America. The trade group attributes that decline to both digital and physical piracy.

If Universal wants an increased share of a shrinking market, I say let them have it. Right between the eyes.

As the economy moves from atoms to electrons, from manufactured stuff to digital information, existing producers fight for market share. As people move from buying things to buying information, the question of who controls the distribution system is relegated to ancient history. Social media have more to do with sales than advertising budgets. The power of the pre-Internet distribution system is is falling steadily year by year.

The battle shifts to the U.S. government. The old media's moguls send lobbyists to Washington to persuade bureaucrats to allocate the right to lose more money. The digital free market is expanding like a new nebula, while the government is called on to decide who gets to be king of the next black hole.

Meanwhile, in book publishing, News Corporation, owned by Rupert Murdoch, in late 2011 bought Thomas Nelson Sons, the Protestant evangelical book publisher, for a reported $200 million. In 2006, a private investment firm had bought Nelson for $473 million. It bought high and sold low.

Concerns over News Corp's purchase were voiced on the Web. After all, News Corp owns Zondervan, Nelson's main rival. With Nelson, it will control 50% of the evangelical book publishers market.

The purchase has not yet gone through. The federal government has not yet approved it.

Why should the U.S. government care? Because it cares about regulation.

Meanwhile, Author Solutions helps authors publish their books.Begun in 1997, it has published 120,000 different book titles. The unofficial estimate is that it is now publishing 20,000 titles a month. I don't want to name the person who told me that, but he is a high-level officer in a major book publishing firm. He has decided to retire. I don't blame him.

The government regulates physical things. Meanwhile, customers and sellers go about their business online.