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A Major Change In Their Tunes

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  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)


_____Graphic_____
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.
_____Live Discussion_____
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.
_____Digital Rights_____
Online Movie Service To Debut (The Washington Post, Jun 14, 2004)
Report: 'Tweens' Less Likely to Pirate (washingtonpost.com, May 26, 2004)
The Future of Music Distribution (Live Online, May 24, 2004)
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In November 2003, Sony and BMG announced a joint-venture merger, combining operations to cut costs and make both companies more efficient, arguing that the industry's dire condition makes the union necessary.

Sony has been low on hits recently, though it has a formidable catalogue of former hitmakers, including Michael Jackson, Bruce Springsteen and Aerosmith. BMG, on the other hand, has hit artists such as Usher, whose recent album debuted at No. 1, and Dave Matthews, but a thin back catalogue. The merger would combine the strengths of each company, Sony and BMG executives say.

But that merger must first be blessed by regulators around the world. Neither Sony nor BMG publicly disclosed the contents of the EC's objections and company officials will not comment on the record for fear of annoying regulators. Both companies released statements Monday saying they will address the EC's concerns. The EC said it wants to make a decision by July 14. In the United States, the deal is being scrutinized by the Federal Trade Commission, where the review process is slightly ahead of Europe's, the companies said.

Europe has thwarted music mergers before. To gain EC approval for the AOL-Time Warner merger, Warner backed out of a 2000 merger attempt with EMI after the European body's antitrust chief Mario Monti questioned it. A year later, EMI and BMG bailed on a merger attempt rather than comply with antitrust conditions imposed by the EC.

The EC's concerns this time are similar to those raised four years ago, the source said. Antitrust officials worry that allowing two of the Big Five music companies to combine their recorded music operations (publishing divisions are not included in the proposal as they were in the 2000 bids) would create an opportunity to dominate the market and drive up CD prices.

Another similarity to 2000: Monti still oversees the EC's antitrust division.

Sony and BMG are arguing that the music business is different now than it was four years ago. They say that the market dominance music companies once enjoyed has largely been sapped, not only by online music, but by the rise of big-box retailers, such as Wal-Mart Stores Inc. and Best Buy Co., which control distribution and set prices.

EMI and Apple Inc. -- whose iTunes music store is the Internet's largest digital music retailer, with more than 70 percent of the online market -- both filed objections to the merger with the EC, the source said.

Also objecting to the merger is Impala, a Brussels-based trade group of several independent European music labels.

"Our concerns are that the merger would make it significantly easier for the major companies to abuse the marketplace, dominate retailers and reduce artists rosters," said Impala's secretary general, Helen Smith, in an interview from Brussels. "It would have disastrous consequences across the whole music sector."

One EU concern is that the corporate parents of the two merger partners could stifle competition by using their diverse empires to dominate music distribution and technology. Critics, for instance, point to Sony's new online music service, Sony Connect, which sells digital songs for 99 cents each. Opponents of the deal were concerned Sony might lock out other music companies' artists from the service, but the EC apparently did not see this as a threat, the source said.

Even as they are attempting to merge, Sony and BMG are watching Warner's cuts to see if they will be enough to turn around the rival.

Warner slipped from second to third place in music sales this year, losing nearly 2 percent of its market share, according to SoundScan. The company also is making fewer hit songs. Last year, the company owned 15.4 percent of "current" market share, meaning recently released songs. So far this year, that number has slipped to 13.2 percent, barely above fourth-place Sony in the "current" category.

Warner is involved in a bitter suit with arguably its biggest star -- Madonna -- over Maverick, the label co-owned by Madonna and Warner. The two sides are arguing about the value of Maverick, which either Warner or Maverick is supposed to buy outright at the end of this year. Warner says that Maverick has been unprofitable for the past five years, after scoring hit CDs such as Alanis Morissette's 1995 "Jagged Little Pill," which sold more than 14 million albums.

Madonna herself, who is signed to Warner Bros., has had a poor recent run. She sold only about 640,000 copies of her most recent album, 2003's "American Life," after stringing together two decades' worth of platinum albums.

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