Sony Breaks Up Duet With BMG Buyout

Sony has acquired German media giant Bertelsmann’s 50 percent stake in Sony BMG Music for US$900 million. Bertelsmann gets another $300 million for its share of the cash on Sony BMG’s books.

Filings with the Securities and Exchange Commission show that Sony BMG will buy back part of Bertelsmann’s stake for $600 million, with another $600 million coming from Sony Corporation of America.

Sony and Bertelsmann originally formed the 50-50 joint venture in August 2004. The new company, Sony Music Entertainment Inc., will be a wholly owned subsidiary of Sony Corp. of America, a unit of Tokyo-based consumer electronics company Sony.

Slumping Sales, Ample Profits

The acquisition comes at a time when sales at Sony BMG are on the decrease. Sales at the joint venture dropped 4 percent to $4.1 billion in the fiscal year ended March 31 as a result of the continuing decline in sales of compact discs, according to filings with the SEC.

However, Sony BMG was a profitable venture. Earnings more than doubled during the fiscal year to $178 million.

“The joint venture between Sony and Bertelsmann has been very successful,” Mack Araki, a Sony BMG spokesperson, told the E-Commerce Times. “It’s been generating sound profits. People love music, and there’s been no decline in their love of music.”

Upon completion of the deal, Sony will control several premier music labels, including Arista Records, Columbia Records, Epic Records, J Records, Jive Records, RCA Records and Zomba. Many best-selling artists, including French-Canadian songstress Celine Dion, rhythm and blues singer and pianist Alicia Keys, Justin Timberlake, Usher, Jay Chou and Bruce Springsteen, have recording deals with those labels.

Sony: Deeper Integration With Phones

Sony made the acquisition so it can continue to integrate its assets in the music business with its consumer electronics products, Araki said.

“Cell phones and portable music devices have been the best-selling items in the consumer electronics market,” he noted. “The acquisition will still enable us to provide a total entertainment experience for consumers.”

Araki pointed to the success Sony BMG has had providing embedded music in Sony Ericsson phones.”We’ll have chances to use the Sony BMG music assets to promote our own music devices,” he said.

Making Up Lost Ground

Sony is trying to make up ground against competitors — especially Apple, which dominates the industry with its iTunes online music store and the iPod portable music device, Gartner Research VP Michael McGuire told the E-Commerce Times.

“Sony’s wondering how they ceded the online music space to Apple so quickly. Apple has shown that you have to create a seamless experience between music stores and the devices that consumers use,” he said. “If you’re a big company like Sony, which has devices like the PlayStation, integrating that content with your available devices — whether it’s game consoles or the new Internet-connected TVs they’ve been selling — can be very compelling.”

However, there could be an inherent conflict in what Sony is undertaking, McGuire believes.

“It’ll be interesting to see how the relationships between the music labels under Sony’s control and Apple and other music device makers play out,” he said. “Labels are in the business of selling licenses and [intellectual property] to anyone creating revenue-generating distribution opportunities. It’ll be interesting to see how these manufacturers react.”

The acquisition of Bertelsmann’s 50 percent stake in the joint venture must be approved by regulators in a number of different jurisdictions, including the European Union and the United States, Araki said.

“We expect the transaction to close some time this fall,” he said.