January 08, 2010

By By Glenn Peoples, L.A.

What if the majors merged with ISPs? It is a question posted at the MIDEM blog by French music industry blogger Hugo Amsellem.

Easy answer: disaster.

For starters, there is no single music company that can merge with a single ISP. Each country has numerous ISPs. A merger is not just a partnership. It is a combination of business entities that reshapes executive ranks, boardrooms and ownership. At the very least, the four existing majors are hardly going to merge into one large music company. Just getting the record business down to three majors would require a good amount of sweet talk to competition and justice officials.

Content companies do not need to own the distribution channel. And vice versa (it's true, Comcast). Content companies will be better off securing distribution deals with the most important channels and concentrating on they do best: creating and licensing content. And because ISP ownership is so fractured around the world, it would be impossible for any single ISP to own a record label's content without the need to license it for use in other territories.

ISPs and record labels are vastly different beasts. In terms of company cultures, knowledge, skills and regulatory conditions, they are polar opposites. Think the Sony and BMG merger was a case study in culture clashes? Try combining Sony and BSkyB.

The proposal to merge music companies with ISPs ignores the other media industries that are also struggling. Should movie studies also pursue a merger of equals with ISPs? If so, who merges with which ISP? Which newspaper should merge with Comcast? Which magazine publisher should merge with AT&T? And what would be gained by pitting one exclusive content distributor against another exclusive content distributor? If ISPs are not exclusive content distributors, we're right back where we started and labels would still need to license their content.

The obvious goal of the digital media economy is to create new products and services for consumers. Distribution channels are vital. Ownership and complete control of those channels are not. The lure of potential synergies has often backfired and proved disastrous to shareholder value. For the sake of shareholders of both ISPs and labels, the idea of combining ISPs and record labels should die a quick death. Instead, content creators should focus on partnerships and other market-based solutions that will allow for new products and services based at the ISP level.

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