Sony in deal for music label
Sony Corp., upping its investment in music despite the industry’s systemic decline, is buying the 50% it doesn’t already own in Sony BMG from partner Bertelsmann for a total of $900 million.
The move allows German media giant Bertelsmann to continue its restructuring while at the same time positioning Japanese consumer electronics and entertainment company Sony to more easily deploy music content over emerging platforms such as cellphones and video games.
Provided the deal passes muster with regulators, Sony’s new wholly owned company will be called Sony Music Entertainment Inc. and will become a subsidiary of Sony Corp. of America, a unit of Japan’s Sony Corp. Sony BMG is the second-largest music label in the world and home to artists including Bob Dylan and Britney Spears.
Under terms of the transaction, Bertelsmann will receive $600 million from Sony for its stake in the 4-year-old partnership. Bertelsmann will also acquire all of Sony BMG’s cash holdings of $600 million, half of which belonged to it already.
Industry analysts said the deal was an unsurprising move, given the companies’ trouble navigating together through the gloomy music industry atmosphere. The global CD market declined by 13% last year and could decrease 50% over the next five years, according to Strategy Analytics, a technology research and consulting firm.
Bertelsmann, which remains a major book and magazine publisher even as it recently shed some book and music club holdings, will take over “selected European catalogs of music rights” from the joint venture, comprising more than 200 artists, the company said.
Sony, which pioneered the compact disc format and portable CD players, has explored promoting artists through its Ericsson cellphones and PlayStation video games, among other platforms, as an alternative to traditional album sales. One of its cellphone models, equipped to play music and take pictures, is even called the Walkman -- a reference to the portable cassette player Sony popularized in the 1980s.
It’s a strategy that rival music labels have also explored, but without the convenience of being makers of various platforms.
“As the entertainment business changes from just selling CDs to getting involved in gaming and home entertainment, Sony is well-positioned,” said analyst Russ Crupnick, a vice president of technology research firm NPD Group.
Crupnick noted that the label had already gone through much downsizing and restructuring since its deal with Bertelsmann as it adapted to sell digital media. “It’s going to be a smooth transition,” he said.
Sony executives could have been “a little faster on the digital trigger, but they’ve recognized that and are in the process of rectifying it,” Crupnick added.
But not all analysts agreed that the road would be completely smooth for Sony as it explored new distribution models.
“No one knows what label their favorite bands record under,” said Gartner analyst Michael McGuire, calling Sony’s decision to take on Bertelsmann’s share of Sony BMG a “curious” one.
“Gamers and fans expect to see a large selection of content, not just a single label’s share,” McGuire said. “Sony can preload content onto devices to give their artists some advantage, but it’s equally likely that people will want to create their own libraries of content.”
Sony shares rose $1.37, or 3.7%, to $38.39 on Tuesday.