Thursday, July 06, 2006

EMI wants Warner Music; Warner Music wants EMI In moves that would consolidate the music industry even more, Warner Music and EMI are seeking to join forces. The big problem is who gets to dominate the partnership. EMI has made a bid for Warner Music ($4.6 billion), and Warner Music has made a counterbid for EMI ($4.5 billion). As a Financial Times article ("EMI/Warner Music", 6/28/06) notes, "The obvious solution would be a merger of equals that shared the claimed $400m annual cost savings." But the desire to take charge of the whole is strong, and neither management wants to be the losers. The egos of the CEOs are a big factor. As a result, the companies are in danger of bidding themselves into a debt that would far exceed the savings from the acquisition. Together, the two companies would have a 25% share of the recorded music industry. Universal has a 26% share while Sony BMG has a share of 22%. The other 27% is currently owned by various smaller labels. EMI almost bought Warner Music three times since 2000, from its then-parent Time-Warner. The deal was frustrated by European antitrust regulators. Bur antitrust pressures have eased, and the example of Sony-BMG is a strong argument for upholding the merger. One area that may have to be sold is Warner Music's music publishing business. EMI Music Publishing is already #1 in that segment, and it's likely that the newly combined company would have to sell off the smaller publisher. Warner Music is now owned by equity groups Thomas H Lee, Bain Capital and Providence Equity Partners, backing ex-Seagram, ex-Univeral exec Edgar Brofman.. You might think that they would be glad to cash out with an astonishing profit gained (they bought the company fro $2.6 billion in 2003); you'd be wrong. These partners would likely win any bidding war as their funds are limitless. Meanwhile, the music industry keeps shrinking, by 3% last year, thanks to piracy and a decline in interest in buying full CDs thanks to the iPod and other digital players. This is a case where, hopefully, the few survivors hope to turn the tide just by being so tight an oligopoly. The idea is to turn the Big Four (formerly the Big Five) into the Big Three. Of course, the deal might fail again. 7:19:54 PM

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