Sony Buys Out Bertelsmann
Sony has announced that it is buying Bertelsmann AG out of their 50-50 music venture for $900 million, giving it full ownership. It will be remaned, Sony Music Entertainment Inc. Sony is looking at music as an on-ramp to its bevy of electronic devices and is hoping that full ownership of the music content will give it an edge of Apple, who has dominated the market ever since the iPod/iTunes ecosystem debuted.
In a filing with the Securities and Exchange Commission, Sony stated it would pay Bertelsmann $600 million and give it all of the $600 million in cash holdings of the joint venture, SonyBMG. Since privately owned Bertelsmann already owned $300 million of that sum, the deal is valued at $900 million.
Although the buyout, which was no shock to industry watchers, enables Sony to act more quickly as a single entity, its going to take a lot more adroit and savvy moves if it really wants to capitalize on their new position as the second largest music label. Cost cutting has helped SonyBMG stem some of the bleeding from an industry beaten down by lackluster artists, cookie-cutter music, online piracy and declining sales.
Sony has already attempted, albeit pathetically, to create their own iPod/iTunes vertical, but failed miserably due to unimaginative devices and a poorly constructed music delivery system that was hampered even further by the PC platform. Furthermore, the concern has demonstrated that it is unable to capture they go-go, heyday of the Walkman era and continues to pin its hopes on inane products like the Rolly.
Once the deal, which is subject to regulatory approvals, is complete, Sony Music Entertainment Inc. will be comprised of several music labels, including Arista Records, Columbia Records, Epic Records, J Records, Jive Records, RCA Records and Zomba. Its artists will include Celine Dion, Alicia Keys, Bruce Springsteen, Justin Timberlake and Usher, among others.
The Future: Stringer, Sony’s CEO, is sharpening his axe. So expect further layoff, cutbacks and lesser known, unprofitable artists to be dropped. But there’s only so much that the accountants can accomplish. The reality is that Sony needs to circle the wagons and leverage their core gaming brain trust to develop the “next big thing” in consumer devices. Why Sony hasn’t brought a PSP Cell phone is market yet is unfathomable. Their Sony/Ericsson offerings look prehistoric compared to the iPhone. And before they know it, Apple’s third party developers are going to turn the iPhone into the de facto portable gaming device. But the question remains, now that you own 100% of BMG, how are you actually going to leverage the content to sell more electronics, if the electronics can’t sell themselves?
