Record Labels in Joint Ventures?

The need to cut costs may push the music industry to experiment with collaborative manufacturing and distribution, according to reports that emerged the first week of October.

With music sales down both domestically and worldwide, and with a prolonged recession likely, major record labels are seeking ways to save money; joint ventures in CD manufacturing are a strong possibility. At least four of the music industry's Big Five have been reported in discussions about shuttering some CD pressing plants and maximizing production from others. News of the strategy first appeared in late August in a one-paragraph item on Billboard magazine's website, but no corroborating reports appeared until early October. No one we contacted at any record label would admit to knowing anything about such plans.

Many CD plants have excess capacity, working at optimum efficiency during only a few weeks a year. Combining their efforts could save the industry millions of dollars, but doing so could run afoul of federal antitrust regulations.

Collaborative distribution schemes have also been suggested, although no major label executives have yet made public statements about such intentions. Martin Peers and Jennifer Ordonez of the Wall Street Journal substantiated many of the rumors in an October 5 report, claiming that Sony Music Entertainment, BMG Entertainment, Warner Music Group, and EMI Recorded Music have all discussed collaborative manufacturing. The lone holdout is said to be Universal Music Group, which owns a larger market share than the others.

At this point, it isn't clear who would partner with whom to make CDs, or whether any resulting partnerships would involve more than two companies. WMG and Sony already have a distribution joint venture in the UK, in addition to jointly operating the Columbia House music and video clubs. Last year's aborted EMI/Warner merger evolved from initial discussions about joint manufacturing. After an EMI/BMG merger was also scuttled, the two companies continued to discuss joint venture possibilities. The companies—or their parent organizations—are also involved in two Internet music distribution ventures, MusicNet and pressplay. MusicNet is an effort by AOL Time Warner Inc. (parent company of Warner Music Group), Bertelsmann AG (BMG Entertainment), EMI Group PLC, and RealNetworks, maker of RealPlayer audio/video software. Pressplay is backed by Sony Corporation and Vivendi Universal SA, parent company of Universal Music.