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Net result: Seagram’s stock soars

Online music plan hits high notes

Internet fever has infected the Seagram Co., sending its stock up 7.4% Wednesday to a record $59 a share after the conglom unveiled plans with new joint-venture partner BMG Entertainment to become “the No. 1 music destination on the Web.”

Seagram prexy and CEO Edgar Bronfman Jr. made the Web commitment at a press conference Wednesday, confirming reports that Seagram’s Universal Music Group and the music division of German media conglom Bertelsmann AG (Daily Variety, April 7) had formed an Internet content and commerce alliance.

The joint venture allows UMG to leap-frog over music competitors with Web presences by piggybacking on the state-of-the-Net efforts of BMG.

The German conglom last year established BMG Online as a stand-alone online arm and bowed GetMusic, the Web site that will boast both UMG and BMG product.

Together, UMG and BMG control about 45% of the domestic music market and sell more than 1 billion CDs of recorded music worldwide annually.

The joint venture plans to use the CDs themselves as marketing vehicles by having them “connect” to GetMusic’s online destinations when used in consumer PCs.

Advertisers will also be eager to pay to have a presence on a Web site that promotes nearly half of the music industry’s repertoire.

Actual destinations will consist of a network of genre-based music channels and the e-commerce site of Getmusic.com.

GetMusic’s backbone is the collection of Net channels already set up by BMG for music genres such as hip-hop (Peeps Republic), alternative (BUGjuice), country music (Twang This!) and rock (Rock Universe).

Bronfman declined to put a value on the joint venture but said the deal could represent “a significant amount of money.”

Bronfman, whose interest in music is well-known, began the briefing with the claim that, together, the partners would “harness the power of the Internet to shape the music world.”

Dr. Thomas Middelhoff, Bertelsmann’s chairman and CEO, used his turn at the podium to remind the audience that his company was no stranger to the Internet, having partnered with America Online in 1994 when the portal boasted fewer than 1 million subscribers.

BMG reinforced its Internet commitment just months ago by buying a 50% stake in online bookseller Barnesandnoble.com

Street pleased

While Bertelsmann is privately held, the market applauded Seagram’s taking its status as the world’s leading music company to the Web by sending the stock past $60 for the first time before settling at $59 by Wednesday’s close.

BMG prexy and CEO Strauss Zelnick said the joint venture has been in the works since Seagram’s acquisition of Polygram last year catapulted UMG to industry leadership.

“Edgar reminded me last night that I visited his office the day after the Polygram deal was announced,” Zelnick said, “and we had a conversation then about the mutual opportunity” promised by the Internet. The deal was officially inked late Tuesday night at BMG’s Gotham headquarters.

Collectively, the companies have nearly 200 artists whose latest album releases have each sold more than 1 million copies, such as the Backstreet Boys, Toni Braxton, Sheryl Crow, Vince Gill, Hole, Whitney Houston, and Elton John.

The alliance is the latest example of renewed and intensified efforts by congloms and Web site operators designed to attract music fans and tap into the fast-growing universe of online music sales.

Viacom’s MTV Networks recently unveiled online plans to tap into the viewers of its programs, while CDNow and Amazon.com have both launched new efforts to grab market share.

BMG, under the aegis of senior VP of worldwide marketing Kevin Conroy, has been leading the industry charge by establishing economic and marketing models for the promotion and sale of music through conglom and record label-operated Web sites.

The BMG/UMG venture, announced at the Righa Royal Hotel in New York, is also being positioned as a supplement to traditional record retailing in brick-and-mortar outlets, such as record stores and home-electronics outposts.

The firms said the Web efforts are designed to drive consumers into these stores by heavily promoting the availability of the albums on the sites.

Albums will also be for sale on the Web sites, a service BMG Online began last year, and one that offers albums from artists in all of the big five major music congloms. Acts from the BMG empire — and now Universal — will be prominently featured and heavily promoted.

Retailers riled

Expectedly, many retailers surveyed Wednesday fumed at the prospect of having their sales cannibalized by the entry of the world’s largest record company also selling its wares direct to consumers.

The pact is also expected to result in the development and implementation of a definitive model for the eventual digital distribution of music online, something BMG (and the music industry) has been actively involved in and UMG had been investigating.

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