BMG, music arm of the Bertelsmann group, announced it will dissolve its relationship with 60 percent of its German artists in a radical restructuring plan. On Monday, EU hearings begin on BMG's planned merger with Sony.
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The major housecleaning at the German division of BMG is part of the creation of a "fundamental cultural change" at the company, according to the division's new president, Maarten Steinkamp, who announced the new policy in a employee newsletter.
According to a spokesman, Oliver Fahlbusch, in the current situation that record companies find themselves in, having seen sales plummet a fifth since 2000, BMG has to change the way it does business. The company doesn't want any more one-hit wonders.
Last year, 85 percent of the new releases by BMG Germany's national artists sold fewer than 25,000 times, a statistic which according to Steinkamp, is not sustainable.
"That brings us market share, but no money," he said.
The new strategy is to concentrate on a few "career artists," or on newcomers with potential for more than one hit or one successful CD. In the past, according to the company, it spread its resources over too many different artists, instead of concentrating on a few promising ones and trying to turn them into "brand names."
"While we will likely show fewer sales in fiscal year 2004, our operating profits will double," said Steinkamp
According to the Financial Times Deutschland, although BMG Germany's 2003 results have not been published, they are thought to be weak, making Steinkamp's operating profit goal feasible.
BMG is not the only big record company to trying to get a grip on the industry's financial situation by cleaning its house of poorer-selling artists, but its plan is the most far reaching. EMI records is also culling its ranks, but has thus far dropped 20 percent of its artists.
Less choice, more market concentration
Independent labels have criticized BMG's actions, saying it will result in a further concentration of the market and fewer artists being represented in record stores.
"It will lead to fewer artists having big marketing budgets to work with," Horst Weidenmüller of Impala, which represents about 2,000 independents, told the Financial Times Deutschland. "Market access for new music will be harder and consumer choice will suffer."
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Independent music companies are also critical of the planned merger between BMG and another of the globe's top five record companies, Sony. On Monday, BMG and Sony went in front EU's antitrust commission to try to get the bloc's approval for a fusion, which would create the world's second-largest music company.
Indie labels have said a Sony-BMG tie-up could prove deadly to smaller companies, who are also struggling to survive in the current economic climate.
"It's much more dangerous to allow market concentration in a weak market, because small companies will find it even harder to survive," Osman Eralp, economic advisor to Impala, told the Associated Press.
He and other heads of some of Europe's largest independents say a merger would put them in danger of being "marginalized further" by the big players who "manipulate access to music at retail, media and on the Internet." They called on the EU to block the merger or call on the Sony and BMG to put "broad remedies" in place to curb possible abuses of market power.
Up to the now, the EU has objected to the deal because the new company would control some 25 percent of the market and reduce the "Big Five" record companies to four, which would control 80 percent of the market.
However, Sony and BMG has said a merger is necessary to sustain long-term viability in a turbulent market and that a partnership would allow them to invest more in artists and repertoire than they could on their own.
Despite the criticism of BMG Germany's contract cancellations, some indies see a bright side. Michael Haentjes of Germany-based Edel Music said the less-popular artists suddenly finding themselves without a label could find a new home with the independents.
"Artists that only sell midsize numbers will probably become available for companies like us," Haentjes said. "That could be an advantage for the independent sector and make the market more competitive."