A Major Change In Their Tunes Sony-BMG Merger Faces Objections; Warner Slashes Costs
Michael Thomas Wellington, of Kansas, listens to folk music at Aron's Records in Los Angeles in December. Music sales have dropped more than 30 percent over the past three years.
(Stefano Paltera -- AP)
Fates of the Big Five Based on CD and online sales, some of the five largest music companies have gained market share since last year while others have lost.
11 a.m. ET Frontline: The Way the Music Died
Transcript Tina Weymouth and Chris Frantz, founders of the Tom Tom Club and former bassist and drummer of the Talking Heads, were online to discuss Internet music downloading, online piracy and other changes in the way people get their music.
By Frank Ahrens Washington Post Staff Writer
Friday, May 28, 2004; Page E01
Battling declining CD sales, falling profits and pervasive piracy, three of the music industry's five biggest companies are adopting radically different strategies to revive their flagging fortunes.
Two of the companies -- Sony Music Entertainment Inc. and BMG Entertainment -- have chosen merger as shelter from the industry's ills, and they face new hurdles to winning approval from regulators.
A third -- Warner Music Group -- separated from its corporate parent and now attempting life on its own, is cutting jobs, costs and even rock stars with a broad scythe.
All three are finding the transition can be rocky.
On Monday, the European Commission gave Sony and BMG -- owned by German media giant Bertelsmann AG -- 60 pages worth of objections to their proposed union. The document focused mainly on what the commission calls the potential for "passive collusion" by the partners, making it less likely the two would compete over prices once they are part of the same company, according to an industry source with knowledge of the document's contents.
The complaint -- called a "statement of objections" -- marked the first significant snag in closing the deal. But both companies sought to reassure investors and others that such concerns are common in combinations of this magnitude. They noted that about 70 percent of proposed mergers receiving such objections have gone on to approval.
At Warner, meanwhile, executives are struggling not with bringing together but with shedding part of what exists.
In March, the company began firing about 20 percent of its employees. Executive salaries were slashed (then slightly restored) on order of chief executive Edgar Bronfman Jr., who led a partnership in buying Warner from entertainment goliath Time Warner Inc. (then AOL Time Warner Inc.) in November 2003 for $2.6 billion. Departments and labels were combined. Now it's come to the music itself. Earlier this month, Warner began cutting money-losing and under-performing artists from its merged Atlantic-Elektra label's roster, and is preparing to let go as many as half of the label's 170 acts.
All music companies -- large and small -- are wrestling with an industry-wide depression. Music (principally CD) sales have dropped more than 30 percent over the past three years. The industry blames the falloff on illegal Internet file-sharing and bootlegged CDs, though others outside the companies said consumers have been alienated by high CD prices and a rash of uninteresting artists. Sony, for instance, lost $81 million in 2003 after reporting $188 million in operating income for 2001.
Five companies -- Universal Music Group, EMI Group PLC, BMG, Sony and Warner -- sell more than 80 percent of the industry's music. Universal is the largest, capturing about 26 percent of the market so far this year, according to Nielsen SoundScan, which tracks music sales. BMG and Sony are second and fourth, respectively; a merger would make them No. 1, with more than 30 percent of the market. Warner sits in third place, with about 15 percent, and EMI trails all, at about 11 percent.