LINDA WERTHEIMER, HOST:
In the music business, 2012 may be remembered as the year that four became three when the weakest of the four major record labels, EMI, was swallowed up by the others. The storied label was home to the Beatles, Pink Floyd, David Bowie, to name just a few, but even that could not save it from an industry-wide decline in music sales. As NPR's Joel Rose reports, EMI's exit raised major questions about the future of a business that's now dominated by just a few players.
JOEL ROSE, BYLINE: It's hard to overstate how much the name EMI means in the U.K. The record label of The Beatles and later The Rolling Stones is even immortalized in a song by another EMI artist.
(SOUNDBITE OF SONG "E.M.I.")
THE SEX PISTOLS: (Singing) EMI, EMI, EMI...
BRIAN SOUTHALL: We signed The Sex Pistols. We lost The Sex Pistols. We had Queen, you know, we had Pink Floyd, we had Kate Bush. You know, it was an extraordinarily powerful company.
ROSE: Brian Southall worked at EMI in the 1970s and '80s.
SOUTHALL: We had a lot of money to spend, and we spent it. You know, we had parties for ludicrous things, as I recall. We even had parties that people didn't turn up at. You know, I think Pink Floyd famously never turned up at any parties we had to launch their albums.
(SOUNDBITE OF SONG, "MONEY")
PINK FLOYD: (Singing) Money, get back. I'm all right, Jack. Keep your hands off of my stack...
ROSE: EMI can trace its history back to the beginning of the music industry when Emile Berliner started the Gramophone Company in 1897 to manufacture the first sound recordings on disc. The company renamed Electric and Musical Industries came to dominate classical music, and later popular music sales in the U.K. But that was then. Brian Southall wrote about EMI's decline in his book, "The Rise and Fall of EMI Records." He says the decline had a lot to do with the contraction of the music industry in the last 10 years. But Southall says it began even before that. EMI had merged with the consumer electronics company Thorn. Then the two parted ways in the 1990s - meaning that, unlike its competitors, EMI was just a music company.
SOUTHALL: If you compare that with the other giants of the day, who were CBS and Warner's, which is part of Time Warner, you know, these were companies that had fingers in lots and lots and lots of pies and weren't dependent solely on the record industry having a good year. So, EMI was left exposed, basically, in the idea that as long as records kept selling, EMI would continue to be profitable.
ROSE: But record sales today are roughly half of what they were a decade ago. And this year, EMI was broken up. Its music publishing division went to Sony, while its recorded music label was sold to Universal Music Group for just under $2 billion. Many of the label's biggest artists had long since jumped ship for a more independent life, including Paul McCartney and Radiohead. The Internet has made it possible for artists of all kinds to bypass labels and take their music directly to the audience. But the majors still have a lot of power, says Casey Rae, deputy director of the nonprofit Future of Music Coalition in Washington, D.C.
CASEY RAE: People keep saying that the major labels are dead, or they're dying. But if that's the case, it's more like the walking dead. It seems like they might be irrelevant to the average person, but they still have tremendous influence over the contours of this developing digital marketplace.
ROSE: Specifically, Rae and others worry that Universal could stifle new digital services by charging too much to license its music. They argued against allowing Universal to buy EMI because that gives one label roughly 40 percent of the market for recorded music. Martin Mills is chairman of the Beggars Group, an independent label based in London.
MARTIN MILLS: It allows them to say to new services that they can live or die, because no new service can live without Universal. So, they have to deal with them, and they have to accept their terms.
ROSE: Mills says Universal already has a reputation for charging huge licensing fees to start-up companies - in effect, strangling new digital music services in their cribs. He points to the example of Beyond Oblivion, a music service that never launched, despite paying lots of money to Universal and other major labels.
MILLS: I mean, that company burned through nearly $100 million in license fees and never actually got off the ground. And a big chunk of that was Universal. So, when digital services launch, you want them to launch with enough marketing funds and promotional budgets to be able to make a dent in the market. And when they've had to give all that money to get the license fees, then it means they're less likely to succeed.
ROSE: And Mills says fewer choices are bad for consumers. Universal's market share seemed to make European regulators nervous, too. They're requiring the company to sell off parts of EMI's catalog, including the Parlophone label, as a condition of the takeover, although Universal does get to keep The Beatles.
(SOUNDBITE OF SONG, "BABY, YOU'RE A RICH MAN")
THE BEATLES: (Singing) Baby you're a rich man, baby you're a rich man, baby you're a rich man too.
ROSE: Universal CEO Lucian Grainge declined to be interviewed for this story, but he did testify in front of a U.S. Senate committee before the deal was approved. Grainge denied that Universal would try to put any digital music services out of business.
LUCIAN GRAINGE: To dissolve the market would be commercial suicide. We're here to invest in EMI, to create more music, to create more options and to create more platforms so that the music can be discovered and sold to legitimate fans.
ROSE: But it's legitimate artists already signed to EMI who may have the most to lose in this takeover. Author Brian Southall says major labels are increasingly focused on hit singles, to the exclusion of almost everything else.
SOUTHALL: Unless you become like Katy Perry or Coldplay or whatever, you're not going to get a lot of resources thrown at you. There will be a number of artists - quite a number of artists - whose contracts will be ended, or certainly not be continued. So there will be acts that will fall by the wayside.
ROSE: Still, parting ways with a major label may not sting quite as much as it used to: Just ask EMI alums Paul McCartney and Radiohead how it's working out for them. Even back in 1977, the Sex Pistols didn't give a toss.
(SOUNDBITE OF SONG "E.M.I.")
THE SEX PISTOLS: (Singing) Hello, EMI. Goodbye.
ROSE: Joel Rose, NPR News, New York.
(SOUNDBITE OF MUSIC)
WERTHEIMER: This is WEEKEND EDITION from NPR News. I'm Linda Wertheimer.