Sony, Bertelsmann to Unveil Binding Music Agreement

Sony Corp. and Bertelsmann plan to announce as early as today that they have reached a definitive agreement to merge their recorded-music units in a deal that would create the world’s second-biggest music conglomerate, sources said.

The pact comes five weeks after the media conglomerates signed a letter of intent to unite the music label operations of Sony Music Entertainment and Bertelsmann Music Group. With a binding agreement, the two sides can file formal applications with antitrust regulators, who twice have opposed proposed mergers in the music industry in recent years.

If approved, the combined Sony BMG would account for an estimated 25% of global music sales, positioning it just behind the industry leader, Vivendi Universal’s Universal Music Group. In the United States, Sony BMG would capture more than 28.7% of overall sales, ranking it as the nation’s biggest music company, with a razor-thin lead over Universal, according to Nielsen SoundScan data.

The agreement calls for Sony and Bertelsmann to create a joint venture that would be governed by a board composed of an equal number of executives from each side.

Rolf Schmidt-Holtz, BMG’s chairman, would become chairman of the board. Sony Music Chairman Andrew Lack would become chief executive.

The combined company would generate more than $5 billion in annual sales by some estimates, and would include a potent roster of stars including Sony’s John Mayer and Bob Dylan and BMG’s Outkast and Alicia Keys.

The Sony-Bertelsmann combination marks the music industry’s latest move to consolidate as it confronts shrinking sales. Facing a three-year sales slump and rampant piracy, four of the five major record companies have been eyeing one another as potential merger partners.

Some executives believe that combining operations and slashing costs are the only ways for companies to survive long enough to see an industry turnaround.

With regulatory approval uncertain and opposition from rivals likely, Sony and Bertelsmann would merge only their music labels.

The deal excludes their distribution and publishing units, as well as Sony Music Japan, sources said.

European regulators signaled in previous merger reviews that too few companies’ controlling music publishing or physical distribution would cross the line into excessive consolidation.

Representatives of both companies declined to comment Thursday.