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And then there were four: Sony's music division and German media company Bertelsmann, parent of the BMG record label, have decided that they've got a better chance under one roof. Last week, the two companies revealed that they will merge their music divisions into a new company called Sony BMG.

The merger follows the resignation last month of Bertelsmann board chairman Gerd Schulte-Hillen, who opposed the deal. The Sony BMG announcement also comes nine days after Edgar M. Bronfman and his son Edgar Bronfman, Jr. officially resigned from Vivendi Universal's board of directors following an announcement by Time Warner that it would accept a $2.6 billion offer for its Warner Music Group (WMG) from an investment group led by the younger Bronfman.

The Sony BMG deal will create the world's second largest record label, with 25.2% of the market, following only slightly behind Universal's 25.9% share. The remaining two major music conglomorates are EMI and Warner, who have a combined share of around 35%. Previously, Sony had already been in second place, with BMG ranked fifth.

Both companies have pledged their music divisions, except for Sony's Japanese music subsidiary, for the equally owned 50-50 joint venture, and although there is no cash changing hands, the new company is expected to assume $110 million in debt from Sony.

The final and most important hurdle will likely be garnering the approval of both European and US competition regulatory agencies, which have blocked earlier attempts to merge any two of the world's top five music labels. Warner and EMI attempted a merger three years ago that was prevented by European regulators, but analysts are predicting that the Sony BMG deal will have a better chance due to the music industry's recent struggles.

Bertelsmann's Gunter Thielen comments, "Sony and Bertelsmann share the vision that this merger is the basis for a company that will concentrate on the creative key business. Our music business plays a key role for Bertelsmann and we believe in its future." Sony's Andrew Lack, who will lead the new venture, adds, "I am convinced that this merger will give us the possibility to create better products for consumers around the globe and to react more effectively to the needs of artists." Rolf Schmidt-Holtz, the chairman and chief executive of BMG, will serve as chairman of the board for Sony BMG.