Sony-BMG Deal Means Layoffs

Merger could also result in dropped artists

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By this time next year, the music industry could be in the hands of three huge companies. On November 6th, Sony Music and the Bertelsmann Music Group announced their intention to merge. The combined company, to be called Sony BMG, would be the second-largest force in the business, behind Universal Music Group. The deal, which may take several months to complete and would have to be approved by antitrust regulators, could result in thousands of layoffs and dozens of dropped artists.

At a time when the music industry is in crisis and record sales have steadily declined, this merger would be the latest in a series of consolidation efforts designed to cut costs. In October, most employees at DreamWorks were absorbed by Interscope. But many industry sources think that shrinking the major-label market is not the way to solve the industry's woes. "You'd love to think merging would help create the new record-label model, but I don't think that will happen," says a BMG insider. "They need to be asking themselves how to change the business."

The Sony-BMG merger would bring together two superstar-packed rosters. BMG is home to OutKast, Pink, Rod Stewart, Dave Matthews and Christina Aguilera; Sony represents John Mayer, Beyonce, Bob Dylan and Dixie Chicks. Sony BMG would be a fifty-fifty venture, with Sony boss Andrew Lack acting as CEO and Bertelsmann's Rolf Schmidt-Holtz serving as chairman of the board of directors.

Representatives for Sony and BMG declined to be interviewed.

Meanwhile, two other labels -- Warner Music Group and EMI -- are also having talks. (Three years ago, European regulators rebuffed a proposed union of EMI and Warner, and another proposal that would have brought EMI and BMG together.) Some executives speculate that regulators will not allow two mergers and may, therefore, deny both requests.

"The goal of these mergers is to cut costs and establish a greater market presence," says one major-label executive. "But it means thousands of people out of work. Any of these scenarios is ugly."

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