The whole sorry Sony-BMG debacle began in December 2003, at the height of concerns about music labels making money, while plundered by piracy, and was completed in Summer 2004. Since then the deal has been in and out of European anti-trust scrutiny, but the disappointment of Bertelsmann management with the merger has been no secret, and since February 2006 it has been known that it wanted out.
A week ago, while Faultline was on its Summer break, Bertelsmann got its wish, with Sony Music Entertainment will take over the whole kit an caboodle, in a transaction widely reported costing $900 million.
When the deal was originally done, the Sony’s total music business was about $4 billion with 25% of it in Japan, but this was falling at the rate of 9% a year, while the Bertelsmann Music Group revenues were around $2.3 billion. However Sony held onto its music publishing business, and Bertelsmann sold its music publishing arm to Vivendi for $2.1 billion back in September 2006 as part of its settlement over its support of Napster, so perhaps the $900 million is a sensible price for existing assets. Private company Bertelsmann has been looking to sell off one or more of its business units for some time, in order to pay down debt.
‘After a careful and thorough review, we made the strategic decision to sell our investment in this joint venture to Sony, a step that we believe will benefit the stakeholders of both our companies,’ stated Hartmut Ostrowski, Chairman and CEO of Bertelsmann AG. ‘This move is consistent with our new growth strategy and will enable us to focus on our defined growth areas. Sony has been an excellent partner, and they are the right company to take this business to the next step and ensure that it realizes its full value and potential. We look forward to witnessing Sony Music Entertainment’s exciting future under Sony’s ownership.’
Once the transaction is completed, Sony Music Entertainment will own labels such as Arista, Columbia, Epic Records, J Records, Jive Records, RCA Records and Zomba managing artists including Celine Dion, Alicia Keys, Yo-Yo Ma, Bruce Springsteen, Justin Timberlake, Usher and Jay Chou.
The two companies will continue to share the company’s manufacturing and distribution requirements between Sony’s manufacturing subsidiary, Sony DADC, and Bertelsmann’s services company, Arvato Digital Services, by extending the agreements with Arvato for additional terms of up to six years.
In addition, Bertelsmann will be taking over selected European music catalog assets from Sony BMG.
This leaves Bertelsmann with TV group RTL, book publishing Random House, magazine publishing through Gruner + Jahr, and it says it will get back into music services through a deal it has done to takes over selected catalog rights from Sony BMG. So Bertelsmann is getting back into the rights business, but getting out of record producing.
Bertelsmann’s new rights comprise the works of around 200 artists in the Sony catalog, seen by Bertelsmann as a way of kicking off a replacement business for the assets it sold to Vivendi.
Bertelsmann’s Chief Financial Officer Thomas Rabe, who is responsible for the music division on the group’s Executive Board, stated: ‘The many new distribution paths are causing an increase in the demand for music use rights. In view of this fact, we believe that building a business for the management and exploitation of such rights in Europe is an attractive proposition. We want to take advantage of our opportunities and position ourselves with the strong, well-established BMG brand and a management that is highly regarded in the market’.