Sony Has Made $1.8-Billion Offer to Buy CBS Records : Could Set Off Board Room Battle Between Tisch and Paley, Fuel Digital Audio Tape Controversy Among Competitors

CBS confirmed Friday that Sony has asked whether the broadcast company is interested in selling all or part of its CBS Records Group, the world’s largest purveyor of recorded music.

In a statement issued in response to press reports, CBS said it “will consider and respond to Sony’s inquiry in due course,” but that “no negotiations are now under way” to sell its record operations. It declined to comment further. A spokesman for Sony told Reuters: “We’re not in a position to say anything about it.”

According to record industry sources, Sony made more than an inquiry--it has submitted a firm offer of about $1.8 billion to buy all of CBS Records Group. Earlier this year, CBS’ board rejected a $1.25-billion bid for the record division from an investor group headed by CBS Records Group President Walter Yetnikoff, who reportedly is aligned with Sony in the current bid.

The sources said Sony’s considerably sweeter offer--which would be by far the largest sum ever paid for a record company--is likely to touch off a board room battle between CBS Chief Executive Lawrence A. Tisch, who is known to favor unloading the record division, and CBS founder and Chairman William S. Paley, who considers it integral to the overall success of the company.

Long the Leader

“At a board meeting Wednesday, Paley was not there, so the offer could not be dealt with,” said a source close to Tisch who asked not to be identified. “If it was up to Tisch, it would be sold; the problem is Paley.”

CBS Records has long been the dominant record company. The company’s three labels--Columbia, Portrait and Epic--boast an artist roster that includes pop music giants Michael Jackson, Bruce Springsteen, Billy Joel, Bob Dylan and Barbra Streisand, country and western star Willie Nelson, opera star Placido Domingo, jazz trumpeter Wynton Marsalis and more than 200 others.

Last year, the record group reported operating profits of $162 million, nearly double those of 1985 and the highest ever reported by any record company. The record division accounted for 37% of CBS’ corporate profits in 1986 and 31% of its revenue. The division is expected to do even better this year on the strength of new album releases by Michael Jackson and Bruce Springsteen.

The prospect of Sony acquiring CBS Records troubles many in the record business. “There are major implications for the recording industry to have a Japanese electronics manufacturer own one of the greatest record companies in the world. It would be bad for the record business because of DAT,” said one record company president, referring to digital audio tape, a new recording technology that offers virtually flawless reproduction.

Major Companies Fighting DAT

Fearing that the recording capability of DAT will undermine the recent success of the compact disk and result in millions of dollars in losses from home taping and record piracy, the major record companies have been fighting the introduction of DAT technology into the United States. They are pushing legislation that would require an anti-recording chip to be placed in DAT players and are united in refusing to license their music for use on DAT cassettes.

However, as a major manufacturer of DAT machines, Sony could be expected to quickly license all of CBS’ music for DAT use. “It’s a little frightening,” said Capitol Records President Joe Smith. “If the CBS catalogue was licensed for DAT, the rest of us would probably have to go along and follow suit.”

If CBS Records was acquired by Sony, it would leave only two of six major record distributors in the United States under domestic ownership: MCA and Warner Communications. The others are British-owned Capitol Industries-EMI Inc., Dutch-owned Polygram and West German-owned Bertelsmann Music Group, parent of RCA Records.