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Business

Giants Merge Amid Growing Insecurity in Music Industry

Bertelsmann Music Group and Sony Music are headed for a mega-merger that would put the two just behind market leader Universal Music. But anti-trust regulators will have the last word.

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CD sales are suffering in the face of growing online piracy.

German media giant Bertelsmann's music division could be heading for a mega-merger with Sony Music that would cut costs and anchor the fused companies in an industry on the rocks.

Executives from the two companies signed a letter of intent for the 50-50 merger on Thursday, according to reports. The deal would merge the worldwide No. 2 music company, Sony, with the No. 5, Bertelsmann's BMG. Every fourth CD will come from the fused company and their combined market share of just over 24 percent will be merely a few percentage points behind market leader Universal.

"The planned company ... will offer artists from around the world an attractive home," Bertelsmann CEO Gunter Thielen and BMG's Rolf-Schmidt-Holtz said in a joint statement.

The King and The Boss under one roof

Shakira and Bruce Springsteen, Elvis and Justin Timberlake will all be under the same roof under the new deal. BMG and Sony executives said the move will keep them from having to cut artists.

"If (Sony and BMG) stood alone, we would have to cut artist rosters and even close activities in smaller countries," said Schmidt-Holtz. "This merger is the best gurantee that we can maintain a broad roster of artists in the current environment."

The recording industry has been suffering in the face of worldwide decline in CD sales and the increasing popularity of music file-sharing Web sites contributing to increased piracy. Officials from both record labels said the deal will provide stability in uncertain times.

Needs to pass anti-trust regulators

Once the deal is complete it will head to anti-trust regulators in Washington and the European Union. The merger announcement comes as rumors fly that British label EMI and Warner Music are close to completing a deal of their own. The merger would reduce further the number of big labels from five to three, something that experts say regulators would most likely not approve.

"While we realize that the music industry currently faces numerous problems, greater consolidation may not be the answer to those problems," U.S. Senators Mike DeWine and Herb Kohl, the chairman and ranking Democrat on the Senate's anti-trust subcommitte, said in a statement.

Regulators already denied a Bertelsmann bid to merge with EMI in 2001. The EMI group met a similar fate after trying to merge with Warner Music the first time around in 2000.

Thielen was optimistic that the deal would meet the approval of regulators. He said he estimated the approval process both in Washington and the European Union in Brussels would take between six and ten months.

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