Thursday, September 11, 2003

The urge to merge in the record industry It's hard to believe that mergers are the solution for the current crisis in the music industry. But that's where the Big Five seems to be heading. It's difficult to imagine many new synergies, since the cost of marketing new talent or stopping piracy isn't going to stop. But perhaps the idea is that if the recording companies get even bigger, they can negotiate better terms with the radio stations for airtime. In any case, here's what a recent Wall Street Journal article says (Sept 9, 2003, "Music Industry Presses 'Play"): And then here are potential mergers. Whether Warner and BMG can reach the altar may be decided this week at a meeting in London. The two sides… are scheduled to meet to iron out issues that have bogged down a proposed merger of Warner Music and BMG, says a person familiar with the situation. Antitrust concerns have repeatedly stymied recent attempts to make a big deal, though it's not for lack of trying. Roger Ames, chairman of Warner Music, has been intent on making such a move since taking over in 1999, but a proposed deal with EMI Group PLC was called off after opposition from European antitrust regulators. Bertelsmann then tried to negotiate its own deal with EMI, before that deal, too, was abandoned in the face of regulatory opposition. By the beginning of this year, against a backdrop of sharply declining music sales, European regulators seemed to soften their rigid stance. Three companies - Warner, BMG, and EMI, again showed the most intense interest in merging, while Vivendi Universal mulled whether it should sell Universal Music. Is getting a bigger piece of a shrinking pie at the cost of an increased debt load the answer? The article goes on to state how merged entities could consolidate labels for a big saving.  But they can do that now, with no merger required. But this will only affect administrative overhead.  After all, people don't buy music based on its label, and none but  music critics and the most hard-core fans have any idea what label this or that artist is on.  Is there a benefit to being in a larger entity when the basic problem is not related to the producers but to the distribution system and the consumers? Making the Big Five into the Big Four does not sound like the salvation of the recording industry. 6:00:12 PM

comment []