BMG and Universal Form Big Music/Big Dollar Powerhouse

If you thought that Amazon.com and CDNow were the undisputed kings of online music sales, think again. On Wednesday, BMG Entertainment and Universal Music Group announced the formation of an unprecedented e-commerce alliance to create online communities of music fans, promote artists, and sell CDs online. The joint venture, to be known as GetMusic, will consist of online music channels and an extremely well-crafted e-commerce site, getmusic.com.

The Big Picture

The alliance is “unprecedented” because the two companies reportedly hold a whopping 45 percent share of the U.S. music market, as well as a hefty chunk of worldwide music sales. In business, at least, size counts, and these two companies present a combined financial powerhouse that dwarfs both Amazon.com and CDnow in comparison.

The entry of industry giants into the e-commerce arena has always been the greatest fear of Internet pioneers and startups, which successfully turned the cutting edge of technology into the leading edge of business. To a great degree, however, they operated unopposed. This is no longer the case, at least not in the online music sales industry. Amazon and CDnow are now facing what is perhaps the biggest threat to their astronomical growth.

To date, Amazon has responded well to strong competition in its book-selling segment. Barnes and Noble, Borders, and even Bertelsmann have made a big dent in Amazon’s virtual monopoly, but Amazon still stands strong. It remains to be seen whether the music selling segment of Amazon’s operations will fare as well as its book-selling segment.

Is this War?

The new mega-alliance seems to be aiming at major market dominance. The following statements released on Wednesday might serve, not only as a message to consumers, but as a dire warning to all competitors.

According to Doug Morris, Universal Music Group chairman and CEO, “With our two companies’ combined resources, marketing strength and unmatched artist rosters, our genre-based music channels will provide the most compelling and interactive music experience and make music available to fans.”

Michael Dornemann, chairman of BMG Entertainment and CEO of Bertelsmann Entertainment, commented: “By linking two of the world’s leading music companies, we will offer an unmatched experience to consumers… Nowhere else on the Internet will music fans find a more comprehensive package of music content, access to artists, music for purchase and community-building features.”

And finally, Thomas Middelhoff, chairman and chief executive officer of Bertelsmann AG, added: “Together, BMG and Universal have the critical mass of artists, resources and expertise to turn this new network into the premier destination for music in cyberspace.”

On Tap at Getmusic.com

The new online music store, getmusic.com, is a well-designed, slick but tasteful site, categorized by sections which the companies refer to as “channels.”

The companies hope that the channels will establish a closer link between artists and music fans, create awareness of new music among fans, and help to drive sales through all channels of distribution. In addition to the companies’ own labels, getmusic.com will also feature titles for purchase from all other music companies.

They Certainly Have What To Sell

BMG, Universal, and their record labels will bring a broad array of superstars and emerging talent to this alliance. The two companies collectively have nearly 200 artists whose latest album releases have each sold more than 1 million copies worldwide. The companies’ rosters include popular artists as Alabama, The Backstreet Boys, Beck, Toni Braxton, Sheryl Crow, Dru Hill, Whitney Houston, Elton John, the Dave Matthews Band, Sting, U2, and many more.

The channels will build on the foundation of BMG’s existing genre-based music Web sites, introduced less than three years ago. Each of these sites has built significant traffic, recording as much as 60% monthly audience growth. Launched in February 1996, peeps.com — devoted to R&B and Hip-Hop artists — was the first genre-based Web site created by a major music company, and has become one of the most trafficked sites of its kind. The channels will be re-launched later this year, with content from both Universal and BMG.

The Players

BMG Entertainment

BMG Entertainment is the $4.1 (US$) billion worldwide music and entertainment division of Bertelsmann AG, one of the world’s leading media companies, with annual revenues of $15 billion. BMG owns more than 200 record labels in 53 countries, including Arista Records, RCA Records and Ariola Music. BMG also owns the world’s largest music club, one of the world’s largest music publishing companies, and has interests in home video, television, and compact disc and cassette manufacturing.

Bertelsmann’s North America interests also include Random House Inc., which includes the Random House and Bantam Doubleday Dell book publishing groups; and the Gruner+Jahr magazine publishing group, which includes McCall’s, Parents, Family Circle and YM magazines, among others.

Universal Music Group

Universal Music Group is a unit of The Seagram Company Ltd. (NYSE: VO), with wholly-owned record operations or licensees in 59 countries around the world. Its businesses also include Universal Music Publishing Group, one of the industry’s largest global music publishing operations, and Universal Concerts.

Universal Music Group consists of record labels A&M, Blue Thumb, Decca Record Company, Def Jam, Deutsche Grammophon, Geffen, GRP, Impulse!, Interscope, Island, MCA, MCA Nashville, Mercury, Mercury Nashville, Motown, Philips, Polydor, Universal, and Verve, as well as a multitude of record labels owned or distributed by its record company subsidiaries around the world.