Page 24 - 2012 Annual Report

VIVENDI l 2012 l Annual Report 24
GROUP PROFILE – BUSINESSES – LITIGATION – RISK FACTORS 1
1
SECTION 2 - BUSINESSES
UNIVERSAL MUSIC GROUP
2.2.6. Regulatory Environment
UMG’s goal is to exploit opportunities for digital distribution and to
protect its copyrights and those of its artists against any unauthorized
digital or physical distribution. UMG created Global Digital Business, a
new media and technologies division within its structure, which analyses
and studies emerging technologies applicable to UMG’s operations, such
as technological defenses against piracy and new physical formats.
UMG has not incurred any material Research and Development expenses.
UMG’s businesses are subject to the laws and regulations of the countries
in which they operate.
In the United States, in 2000, certain UMG subsidiaries entered into a
Consent Decree with the Federal Trade Commission (FTC), under which
they agreed that, for the next 20 years, they would not make the receipt
of any co-operative advertising fund for their pre-recorded music products
contingent on the price (or price level) at which such products are offered
for sale.
In 2003, following a lawsuit filed by the FTC, the FTC issued an order that
generally prohibits UMG from entering into agreements with unaffiliated
entities to fix, raise or stabilize prices or price levels for the sale of audio
or video products in the United States and any agreements with such
entities to prohibit non-deceptive advertising for audio or video products
in the United States.
Also in the United States, in 2004, a UMG company entered into a Consent
Decree with the FTC, under which it agreed to comply with the provisions
of the Children’s Online Privacy Protection Act and to maintain records
demonstrating compliance.
2.2.7. Piracy
Piracy continues to cause material damage to the music industry while
impeding the development of new business models. It is estimated
that for every 20 songs downloaded from the Internet, only one song is
legally purchased. UMG takes a multi-pronged approach in response to
piracy, working in conjunction with the rest of the music industry and
other entertainment sectors, including the movie and games industries
and across other sectors via initiatives like the International Chamber of
Commerce’s BASCAP. This multi-pronged approach includes the following:
✱ UMG supports the launch of new and innovative services, such as
Spotify, Aspiro’s WIMP and Google Music, as well as the continued
growth of existing services such as iTunes, Amazon, Deezer and Vevo,
giving consumers an increasing number of ways in which to legally
access music. UMG has over 420 online digital content partners
around the globe; and
✱ UMG works with governments and ISPs to introduce measures to
educate users about the wide availability of legitimate downloading
services and which implement a system of warnings about the use
of illegal services. Ultimately, where a user repeatedly ignores
the warnings, this system would impose penalties such as the
temporary suspension of Internet access. Graduated Response
Systems, for which the results are encouraging, have been put in
place in France (HADOPI law), New Zealand and South Korea. The
Graduated Response Memorandum of Understanding with ISPs in the
United States started to roll-out during 2012.
2.2.8. Competition
The profitability of a recorded music business depends on its ability to
attract, develop and promote recording artists, the public acceptance of
those artists, and the success of recordings released within a particular
period. UMG competes for creative talent with the other major record
companies both for new artists and for those artists who have already
established themselves with another label.
UMG also faces competition from independent labels that are frequently
distributed by other major record companies. Although independent labels
have a significant combined market share, no single label has material
influence over the market.
The music industry competes for consumer discretionary spending with
other entertainment products such as video games and motion pictures.
In recent years, UMG has been facing greater competition for shelf-space,
due to declining CD sales and continued consolidation of the retail sector
in the United States and Europe.
Finally, the recorded music business continues to be adversely affected
by piracy, in particular illegal downloading from the Internet (please refer
to Section 2.2.7 “Piracy” of this chapter).
2.2.9. Research and Development