BMG-EMI Merger Draws Nearer

The "Big Five" of the recorded music industry is one step closer to becoming the "Big Four," according to late-January reports from Frankfurt, Germany, home of Bertelsmann AG. Bertelsmann is the parent company of Bertelsmann Music Group, which has been in merger discussions for several months with the United Kingdom's EMI Group PLC. Discussions are near completion, according to a BMG official.

Both BMG and EMI are dominant players in the music business. United, they would control more than 25% of the global market, more than Vivendi's Universal Music, Sony Corporation's Sony Music Entertainment, or AOL Time Warner's Warner Music do individually. The five companies control 75%-85% of the world market in recorded music.

Since independent record labels account for only 23% of the market, European Union officials continue to feel uneasy about consolidation by major music companies. Last year, a proposed merger between Warner Music and EMI was scuttled after EU commissioners decided that the resulting company would amount to a monopoly of the European music market. BMG and EMI may each have to jettison some assets to gain commission approval. EMI has ruled out Virgin Records as one such possibility due to its prominence on the corporate roster.

A fifth, but smaller, music company could result from a paring down of the merging giants, a company whose assets could then be acquired by one of the larger independent labels such as Zomba Records or Edel Music AG. Bertelsmann hopes a merger will bring more artists to the now commercial Napster site, underwritten by its former adversary last year after prolonged copyright infringement litigation. Napster has had a difficult time signing affiliates since settling with Bertelsmann and entering a strategic alliance to sell music directly to fans. A lack of downloading standards and reliable copy-inhibition technology has kept music companies away from serious involvement in Internet delivery of music.