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BMG attempting to merge with EMI

Team-up would reinforce Napster alliance

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Germany media giant Bertelsmann, which wants to buy Napster, also has its eye on EMI, the British music company said today.

The two companies are in early talks, EMI told the London Stock Exchange, with the plan centring on a merger between EMI and Bertelsmann subsidiary Bertelsmann Music Group (BMG).

EMI and BMG are two of the five global recording companies known as the 'big five'. During the autumn, EMI was lined up to merge with fellow 'big five' company Warner, itself part of Time-Warner, which is due to join with AOL, US anti-trust regulators permitting.

The EMI-Warner deal collapsed after European Commission officials rejected the merger because of the AOL connection. Without that company's involvement, a BMG-EMI deal has much more chance of success, though BMG's links to AOL through AOL Europe shouldn't be ignored.

BMG's interest in EMI emerged last month in the aftermath of the failed EMI-Warner deal.

The motivation between the merger talks appears to be to cut costs and grow content catalogues as the music business prepares for a far more Net-centric future. BMG's decision to work with Napster and its music-sharing distribution paradigm rather than fight against an apparently unstoppable tide shows it to have rather a more canny, pragmatic view of the world than many of its fellow labels.

But for the BMG-Napster alliance to work, it needs support of the likes of EMI, Sony and Warner - fellow 'big fiver' Universal seems implacably opposed to it. Buying one of the three would build sufficient critical mass to persuade the others, all of them apparently unsure as to the best course to pursue. Sony is too big to buy, and AOL is unlikely to want to offload Warner, not when it too sees big profits in online music distribution, so that leaves EMI.

At this stage, BMG's approach to EMI seems tentative, as they explore whether they could come together before deciding how the merger would work. ®

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