Sony and BMG quit playing solo in the race to the watchdog's office
7/11/2003 13:59
Mergers and acquisitions are back: big five play musical chairs
Sony and BMG yesterday announced they intend to merge their recorded music businesses, bringing together artists such as BMG's Pink and Sony's Beyoncé Knowles.
They said they have signed a non-binding letter of intent to form a joint venture which would be half owned by the Japanese electronics group Sony and half by the German media group, Bertelsmann, which owns BMG.
The announcement extends the game of musical chairs that has been going on in the record industry. EMI is understood to be close to securing a $1bn (£600m) loan to fund an acquisition of the recorded music assets of Time Warner.
Sony BMG, as the new venture would be known, would only include the recorded music divisions of BMG and Sony, not music publishing, and Sony's Japanese music business would not be included. No cash would change hands, it is believed.
Due diligence will continue, and the companies could be ready to sign a deal within a month, a source close to the situation said. The companies confirmed that BMG chief Rolf Schmidt-Holtz would be chairman of the new joint venture while Sony's boss, Andrew Lack, would be chief executive.
Sony BMG has already had informal discussions with the tough competition regulators at the European commission. They would formally ask for permission to merge after a deal has been signed.
The progress of the new venture puts pressure on EMI and Warner to complete their deal. It is widely expected in the industry that regulators could allow the big five music majors to become four, but not for four to become three. Therefore who gets to the regulators first could be crucial. In 2000, regulators blocked a merger between EMI and Warner Music.
The other music major is Universal, the world's largest recording business with a 26% market share, which is excluded on competition grounds. The combination of Sony and BMG would have a 25% share while EMI and Warner would have 24%.
The music majors are trying to merge so they can cut costs and alleviate the problems the record industry has experienced in recent years. It has suffered from illegal downloading of music from the internet and the better quality of bootleg CDs. Worldwide music sales have been in free fall now for three years.
However, the music publishing business, which exploits music rights rather than trying to break new acts, has fared better. At present this is not included in any of the mega-mergers being discussed.
"If you were patching up a sinking ship, the recorded music vessel would have the bigger leaks," said Marcus Anselm, a music specialist at corporate finance boutique LongAcre Partners. "The current business model for recorded music going forward just doesn't work... but I am not sure that a merger is a long-term answer."
Time Warner is considering a sale of its music publishing business, Warner Chappell, and several independent publishers, including Carlin America and Peermusic, are talking to financial backers about a deal. Sony ATV, a joint venture between Sony Corporation and singer Michael Jackson, is also looking at acquiring Warner Chappell.
It is not clear whether Bertelsmann would keep hold of BMG's music publishing business or seek to sell it once its recorded music division had joined with Sony's.
As Sony BMG's letter of intent is non-binding, speculation continued that BMG could be playing a game with Sony in an attempt to bring Warner back to the negotiating table.
They had been trying to do a deal until talks broke down in September, when Warner turned to EMI and BMG to Sony. A source close to BMG said: "These [Sony-BMG] talks are exclusive, a third party couldn't come in."
Sony and BMG yesterday announced they intend to merge their recorded music businesses, bringing together artists such as BMG's Pink and Sony's Beyoncé Knowles.
They said they have signed a non-binding letter of intent to form a joint venture which would be half owned by the Japanese electronics group Sony and half by the German media group, Bertelsmann, which owns BMG.
The announcement extends the game of musical chairs that has been going on in the record industry. EMI is understood to be close to securing a $1bn (£600m) loan to fund an acquisition of the recorded music assets of Time Warner.
Sony BMG, as the new venture would be known, would only include the recorded music divisions of BMG and Sony, not music publishing, and Sony's Japanese music business would not be included. No cash would change hands, it is believed.
Due diligence will continue, and the companies could be ready to sign a deal within a month, a source close to the situation said. The companies confirmed that BMG chief Rolf Schmidt-Holtz would be chairman of the new joint venture while Sony's boss, Andrew Lack, would be chief executive.
Sony BMG has already had informal discussions with the tough competition regulators at the European commission. They would formally ask for permission to merge after a deal has been signed.
The progress of the new venture puts pressure on EMI and Warner to complete their deal. It is widely expected in the industry that regulators could allow the big five music majors to become four, but not for four to become three. Therefore who gets to the regulators first could be crucial. In 2000, regulators blocked a merger between EMI and Warner Music.
The other music major is Universal, the world's largest recording business with a 26% market share, which is excluded on competition grounds. The combination of Sony and BMG would have a 25% share while EMI and Warner would have 24%.
The music majors are trying to merge so they can cut costs and alleviate the problems the record industry has experienced in recent years. It has suffered from illegal downloading of music from the internet and the better quality of bootleg CDs. Worldwide music sales have been in free fall now for three years.
However, the music publishing business, which exploits music rights rather than trying to break new acts, has fared better. At present this is not included in any of the mega-mergers being discussed.
"If you were patching up a sinking ship, the recorded music vessel would have the bigger leaks," said Marcus Anselm, a music specialist at corporate finance boutique LongAcre Partners. "The current business model for recorded music going forward just doesn't work... but I am not sure that a merger is a long-term answer."
Time Warner is considering a sale of its music publishing business, Warner Chappell, and several independent publishers, including Carlin America and Peermusic, are talking to financial backers about a deal. Sony ATV, a joint venture between Sony Corporation and singer Michael Jackson, is also looking at acquiring Warner Chappell.
It is not clear whether Bertelsmann would keep hold of BMG's music publishing business or seek to sell it once its recorded music division had joined with Sony's.
As Sony BMG's letter of intent is non-binding, speculation continued that BMG could be playing a game with Sony in an attempt to bring Warner back to the negotiating table.
They had been trying to do a deal until talks broke down in September, when Warner turned to EMI and BMG to Sony. A source close to BMG said: "These [Sony-BMG] talks are exclusive, a third party couldn't come in."
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