Sony BMG hears a sour note
A big surprise in the music oligopoly.
Sony Music and BMG, two of the top five music recording companies merged in 2004 with the blessing of the regulatory agencies, especially the European antitrust agency, the European Commission. That approval was crucial, as the EU Commission had, up to that time, had previously shut down similar big deals.
. In 2006, almost two years after the approval went through, Europe's Court of First Instance overturned the merger. The merger had been challenged by Impala, a trade group of over 2,500 independent record labels. They claimed that further concentration of the music industry would be anti-competitive, as between them Sony BMG and Universal Music Group would produce over 50% of the world's music. The Court of First Instance agreed, and said that the EU Commission did a poor job in applying antitrust standards and reviewing the facts.
The interesting part is that Sony BMG has long ago completed the merger. Now that established company will have to apply again to the EU Commission, who will have to review the merger again. The commission could possibly force the company to split in two.
Also important is the prospects for the now furiously pursed EMI-Warner Music merger, even though it had been rejected by the EU Commission in 2000.
Sony BMG execs are saying that they are confident the merger will hold up on review, and they may be right. One reason is that the barriers to entry to the music business have all but disappeared, as the means to produce and copy and sell music have all become far more affordable. As the profitability of sales from digital sources like iTunes and from online stores like Amazon get ever bigger, some of the advantages of the big labels are falling away. Even the growth of satellite radio allows for more narrow, focused marketing efforts. And piracy flourishes.
In these ways, technology is disrupting the industry at a speed that smaller companies could soon take major advantage of.
In addition, the big record companies aren't doing so well in any case. Even endless consolidation can't save companies from deep disruption in their industry. In fact, bigger companies may be even less able to adapt quickly to such changes, fighting for the old familiar order. Sony BMG has been especially hard hit, with losses in five of the last seven quarters, and combined market share has dipped.
The EU Commission will be looking at a sadder and smaller behemoth. It would be surprising, but not impossible to see it broken into two pieces. But I would guess that the company will just have to split off a few labels from its many, just to give the impression of complying with the court opinion.
