Sony, BMG plan to consolidate music operations to stall slump
The proposed merger would bring together the world's No. 2 and No. 5 music companies at a time when the recording industry is struggling to stem a three-year slide in CD sales and cope with the impact digital technology and the Internet have had on its business model.
The new company, to be called Sony BMG, would be equally owned by Sony and Bertelsmann and run by Andrew Lack, chairman and chief executive of Sony Music Entertainment. Rolf Schmidt-Holtz, the chairman and chief executive of BMG, would serve as chairman of the board.
The deal, which would have to win approval from U.S. and European regulators, would unite Sony and BMG's recorded-music business but would exclude music publishing, physical distribution and manufacturing.
Bertelsmann didn't say whether the companies had agreed on financial terms in their letter of intent or what issues remained to be worked out before a final agreement could be struck. The companies agreed to hold exclusive talks, said Patrick Reilly, a spokesman for BMG.
In a letter to BMG employees obtained by The Associated Press, Schmidt-Holtz said the venture should be completed in the "coming weeks and months."
A spokesman for Sony said Lack was traveling and couldn't be reached.
The deal would put some of music's biggest stars under a common corporate roof. Sony Music Entertainment's labels include Columbia, Epic and Sony Classical, and it is home to artists including Bruce Springsteen, Beyonce Knowles and Celine Dion.
Among the stars on BMG's various labels are Dido, the Dave Matthews Band, Christina Aguilera, Alicia Keys, Avril Lavigne and the late Elvis Presley.
The music industry has been in a state of flux because of illegal online music sharing and CD burning as well as an ongoing shift away from CDs and toward a more mobile, digitally based means of listening to music.
Consolidation should help Sony and BMG better deal with industry changes as they shed excess staff and unprofitable artists from their rosters while pooling their bankable acts.
"The integration of BMG's roster of artists into the Sony roster will certainly yield some more mega artists for Sony Music, which in turn will give them a greater possibility of profit," said Michael Goodman, media and entertainment analyst at the Yankee Group.
The other three major record companies — industry leader Universal Music Group, EMI Group of Britain and Warner Music Group — also have been contemplating consolidation.
EMI is in talks about the possibility of buying Warner Music Group from Time Warner, three years after European regulatory opposition ended their discussions about a possible joint venture.
But if Sony and BMG complete their merger first, some analysts say, it could lead to regulatory hurdles for the others.