Sony, BMG making beautiful music

Conglom to control about one-quarter of global market

This article was updated at 8:50 p.m.

Acknowledging that the music industry needs all the help it can get these days, the European Commission on Monday formally blessed the merger of Sony Music and Bertelsmann’s BMG “without conditions.”

The 50-50 joint venture now awaits a greenlight from Federal Trade Commission, which could come as early as today.

Move reverses the EU’s traditional reluctance to permit such powerful alliances; it nixed a Warner-EMI union back in 2000.

Merger will give the combined entity a market share of about 30% in North America and a European market share of slightly more than 25%. Its closest competitor will be Vivendi’s Universal Music Distribution, the industry giant since it acquired Polygram five years ago.

The four major distribs — Sony-BMG, EMI, Warner Music and Universal — control 80% of the world’s recorded music sales.

In a statement Monday, Bertelsmann chief exec Gunter Thielen said the new Sony-BMG “will create a recorded-music business better able to serve artists and consumers in this rapidly changing marketplace.”

Sony Music Entertainment chairman-CEO Andrew Lack commended the EC’s “diligence” in reviewing all the aspects of the joint venture and recognizing that “the creation of Sony-BMG is an appropriate and necessary response to current market conditions.”

EU Competition Commissioner Mario Monti determined after extensive hearings that the merger would neither harm independent record labels nor necessarily increase prices of music for consumers. Body said it lacked evidence that the merger would lead to industrial collusion that would harm consumers or thwart technological development.

Some legal experts believe the approval, a marked shift from the European trustbusters’ previous aversion to such mergers, could set an encouraging precedent for a possible combination of EMI and Warner Music, now under the control of Edgar Bronfman Jr. and his private equity backers. Bronfman is known to be interested in pursuing a deal if the regulatory climate is right.

BMG chairman-CEO Rolf Schmidt-Holz will be chairman of the board of directors of the new company, while Lack takes over as CEO. Current BMG chief exec Michael Smellie will become chief operating officer, reporting to Lack.

Organizational efforts

Beyond that, both companies are keeping quiet on the future complexion of the new music behemoth. Both have reshaped their organizational setup since merger talks were announced. Clive Davis heads up BMG’s two primary labels, RCA and J, while Don Ienner oversees Sony Music’s Columbia and Epic labels.

BMG boasts the year’s biggest seller, Usher’s “Confessions,” and other hitmakers such as Avril Lavigne, Maroon 5, Alicia Keys and the “American Idol” champs. Sony acts currently on the sales chart include Modest Mouse, Gretchen Wilson, Switchfoot, Jessica Simpson, Franz Ferdinand and Prince.

Merger will bring together the catalogs of Elvis Presley, Bob Dylan, Bruce Springsteen, Santana and Miles Davis; BMG’s RCA and Sony’s Columbia date back to the turn of the 20th century.

Layoffs ahead

Integration of the two firms is expected to begin once the cash-free deal formally closes in the next several weeks. Layoffs of as many as 2,000 employees have been projected, though execs from BMG and Sony have refused to confirm any numbers. The labels are likely looking for about $300 million in annual cost savings — the same number bandied about when Time Warner proposed the merger with EMI.

Sony Music laid off about 10% (about 1,000 employees) of its worldwide staff 16 months ago, and BMG has restructured its label groups and eliminated staffs at Arista and So So Def earlier this year.

No plans for the structure of the new Sony-BMG labels have been revealed; after Bronfman purchased Warner Music Group from Time Warner, labels were conjoined and restructured according to geography — the West Coast for Warners and the East Coast for Atlantic. Warner Music’s moves, including layoffs and roster cuts, are expected to cut costs by more than $250 million.

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