Done Deal: Sony BMG

Now there are four. The music industry's "Big Five" record labels officially became the "Big Four" on Thursday, August 5, as Sony Music Entertainment and Bertelsmann Music Group (BMG) finalized a merger months in the making. The partners are the music divisions of Sony Corporation and German media conglomerate Bertelsmann AG, respectively.

The new venture, Sony BMG, will be based in New York City and will be owned 50/50 by the two partners. Excluded from the deal are the parent companies' music publishing operations, as well as their disc manufacturing and distribution businesses. Sony's Japanese music business, SMEJ, was also excluded from the deal.

Former Sony Music chief Andrew Lack was named CEO of the new venture, with BMG's former chief operating officer Michael Smellie retaining that title in the new company. Sony Music's former executive vice president and chief financial officer Kevin Kelleher will also keep his position in Sony BMG. Other management roles weren't announced. The financial press anticipated that as many as 2000 jobs could be cut as a result of the merger, saving the combined entity approximately $350 million annually.

The merger makes Sony BMG the second largest record label, only slightly behind Universal Music Group. Each controls approximately one quarter of the global market in recorded music. Among the artists on the Sony BMG roster are big revenue generators such as Britney Spears, OutKast, and Travis Tritt, as well as back-catalog favorites such as Johnny Cash, Miles Davis, Elvis Presley, and Stevie Ray Vaughan. Well-known subsidiary record labels RCA and J Records (BMG) and Epic and Columbia Records (Sony) are expected to retain some autonomy and individual identity.

The merger was finalized after winning approval July 20 by European Union commissioners, and nine days later, by the US Federal Trade Commission. EU commissioners had endured protests from hundreds of independent record labels fearing that the merger would lead to a monopoly of the European music market. EU approval was granted without imposing any restrictions on the new company, although officials said they would keep a close watch on developments in the music industry. The US FTC followed suit on July 29, also granting unconditional approval to the venture. Full integration of the two companies could take as long as 18 months, according to reports from New York. No mention was made as to how the merger might affect Sony's position on the DualDisc format.