Broken (merger) record

Bob Moon Jun 28, 2006

TESS VIGELAND: The world’s third- and fourth-largest music companies have been trying for a while now to record a duet. But they’re still haggling over who gets to sing lead. EMI and Warner Music Group are trying to acquire each other. Today EMI said it rejected a $4.5 billion offer from Warner. While at the same time offering $4.5 billion for Warner. Marketplace’s Bob Moon reports on the broken merger record that keeps spinning round, round, baby, right round.

BOB MOON: There’s been a flurry of offers and counteroffers between the two companies in the last couple of months. The latest: EMI’s nearly $4.6 billion offer. But still, the two sides can’t seem to figure out how to join forces.

They say combining makes sense, that sluggish music sales worldwide would justify the merger and make it easier to compete with the two leading industry giants, Universal Music and with Sony-BMG, which merged several years ago.

Warner Music and EMI tried to merge six years ago, back when Warner Music was still a division of Time-Warner. Even then, Time-Warner’s President Richard Parsons was touting the wisdom of a merger:

RICHARD PARSONS: This is a match made in heaven. It’s going to create value not only for EMI shareholders but for Time-Warner shareholders, and we would argue for artists who will be a part of our company going forward, and for the employees.

GREEN DAY: Another turning point, a fork stuck in the road . . .

The home of Green Day and Madonna, Warner Music is now owned by investor Edgar Bronfman. He’s made it clear he’d like to merge with EMI. And EMI executives have recently voiced hope regulators would look favorably on such a deal. But analyst Phil Leigh at Inside Digital Media isn’t so sure:

PHIL LEIGH: There’s just a question of drawing the line somewhere. There was a time when you had, you know, not too long ago, five major record labels. Now it’s down to four, and this would drop it to three. So we’re really talking about the music business here. Industry concentration and its impact on competitive pricing is a legitimate consideration.

The combined companies would have about one-quarter of global music sales.

In New York, I’m Bob Moon for Marketplace.

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