The Deal's Richard Morgan
reports that Sony Corp. [ADR:
SNE] of America is nearing a deal with Bertelsmann AG under which the the Japanese giant will take full control of Sony BMG Music Entertainment, the joint venture the companies created in August 2004. The negotiations could result in an agreement to dismantle the venture more than a year ahead of its planned expiration date of August 2009, effectively shortening the five-year agreement between Sony and Bertelsmann.
Sources close to the deal have pegged the buyout price for Bertelsmann's half of the joint venture at $1.1 to $1.2 billion, valuing the entire business at $2.2 to $2.4 billion. That's roughly 70% of the $3.3 billion enterprise value of Warner Music Group Corp. [
WMG], a label with
similar market share, although Warner has retained its publishing arm, while Bertelsmann sold its for $2.1 billion in September 2006.
Although Sony BMG would still wind up in the hands of a large parent, the divestiture by Bertelsmann could be the next step in trend toward publicly traded media corporations exiting the music business. Private equity firm Terra Firma Capital Partners acquired EMI Group last year but has struggled in its turnaround efforts, with no potential buyers in sight. (Conglomerate Thorn EMI, which included media properties. as well as various other lines, spun out EMI Music in the mid-1990s; Thorn eventually wound up in Terra Firma's hands as well.)
Warner and Universal Music Group remain in the hands of larger companies, namely
Time Warner Inc. [TWX] [
see update below] and Vivendi SA [EPA:
VIV]. The majors are low-margin businesses that historically haven't been well-suited to producing consistent quarterly profits, and Bertelsmann may be the first, or latest, media giant to wash its hands of a sector whose profitability and overall future remain in question.
UPDATE: The commenter below is right. Although it's still publicly traded, WMG was spun out of Time Warner Inc. in 2004. My apologies. But I think the larger point that the music labels of the future will do better as private rather than public companies is still true.
-- Paul BonanosSee story about the Sony BMG joint venture from TheDeal.com
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I don't think Time Warner owns WMG. I could be wrong, though.