In a not-so-surprising move, Bertelsmann Music Group (BMG) is looking to split from Sony’s music group and sell its stake back to Sony (or another bidder) for 1.5 billion USD. The two companies went 50-50 in this joint venture nearly four years ago (August 13th, 2004) yet the results have been lackluster and the drama has been abundant. It is one of the Big Four music companies, and includes ownership and distribution of recording labels such as Arista Records, Columbia Records, Epic Records, J Records, Jive Records, RCA Victor Records, RCA Records, Legacy Recordings, Sonic Wave America, and others. Let’s take a look at a few events that soured the relationship:
- July, 2005: Sony BMG was fined 10 million dollars after the New York Attorney General’s office determined that they had been practicing payola mostly in the form of direct payments to radio stations and bribes to disc jockeys to promote various artists including Franz Ferdinand, Audioslave, Celine Dion and mainly Jessica Simpson.Epic Records, one of their labels, was specifically cited for using fake contests in order to hide the fact that the gifts were going to disc jockeys rather than listeners.
- Late 2005: A controversy over digital rights management (DRM) software that automatically installed itself on people’s computers and made them more vulnerable to computer viruses that was produced and shipped by Sony BMG ensued. The scandal caused numerous lawsuits and Sony BMG ended up recalling all affected CDs.US-CERT, the United States Computer Emergency Readiness Team, part of the United States Department of Homeland Security, issued an advisory on Extended Copy Protection DRM, citing the XCP use of rootkit technology to hide certain files from the computer user as a security threat to computer users and saying that one of the uninstallation options provided by Sony also introduced vulnerabilities to a system.
- October, 2007: Sony BMG successfully sued Jammie Thomas. The single mother, who made US$36,000 a year, was ordered to pay US$222,220 in damages for making 24 songs available for download on the Kazaa file-sharing network. Thomas is currently appealing the decision.
- March, 2008: Busted in France for using pirated software on its servers. And it gets even worse: Windows admin tool developer PointDev says a Sony BMG was caught when an IT staffer actually called up for support and gave a pirated license number to the phone tech.
Sony and Bertelsmann’s current agreement runs out August 2009 but sources believe a deal is likely by this fall and could even come before Bertelsmann’s half year results are announced August 28. A Bertelsmann spokesman Wednesday told THR “no decision had been made” regarding the Sony BMG stake and declined to comment on what he termed “market rumors.”
Bertelsmann CEO Hartmut Ostrowski has made it clear a BMG sale option is on the table as he moves to focus on the German media giant on its high-growth core businesses.
From Reuters:
German media group Bertelsmann is seeking $1.2 billion to $1.5 billion to pull out of its Sony-BMG music label joint venture with Sony Corp, the FT reported on Thursday.
The companies hope to strike a deal over the summer, but there are still differences over the price, the newspaper said, citing three unidentified people familiar with the talks.
Bertelsmann is looking for up to $1.5 billion for its half share, although this could fall if Sony pledged to buy services from Bertelsmann, whose Arvato arm makes and distributes CDs, the paper said.
Bertelsmann, which was not immediately available for comment, has said it would focus more on media services and educational-publishing as compact disk sales fall.
Sony, which also owns a stake in Sony-Ericsson, has been shifting weight towards music services for mobile phones as users increasingly use their phones as music devices.
Sony BMG, home to artists including Beyonce, Bruce Springsteen and Celine Dion, signed a deal with Nokia in April to offer free unlimited downloads for 12 months to Nokia’s music phones.
Sony also has a joint venture with Ericsson and is the sole Japanese mobile phone maker with a substantial global presence, despite the country’s advanced handset technology.
The two companies agreed that when they merged Sony Music and Bertelsmann Music Group in 2004 that either side could buy the other out by August 2009.
Shares of Sony were down 2.7 percent at 5,140 yen at 0336 GMT, while the Nikkei average .N225 fell 2.3 percent.
