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The BBC's Peter Morgan reports
"It's no secret that sales on the internet have driven today's new alliance"
 real 28k

Andrew Walker reports for BBC News
"It'll be the largest record company in the world"
 real 28k

Monday, 24 January, 2000, 22:11 GMT
Merger heralds music scramble

Top executives celebrate: Eric Nicoli, Ken Berry, Roger Ames and Richard Parsons


AOL/Time Warner Special Report
The merger of UK record company EMI with Time Warner's music division, creating the world's biggest music company, is expected to spark a scramble for tie-ups with other record companies.

The new 12bn group will unite many major artists in one hugely lucrative catalogue, including the Spice Girls, Madonna, Robbie Williams, Cher, Phil Collins, Eric Clapton, the Beatles and the Rolling Stones.


This will be the spark that sets off a much bigger bonfire
Kenneth Cukier,
internet expert


The reason for bringing EMI into the newly merged $300bn media conglomerate AOL Time Warner is to try to secure a big slice of the internet music business of the future.

The potential for providing almost limitless entertainment via the internet has been talked about for some time, but it seems this is the year when the business world will start to make it happen.

Customer base

The key to understanding this merger is not so much that a link between the new group - to be called Warner EMI Music - and AOL (America Online) puts music on the web.

The key is that it gives EMI Warner a huge new potential customer base - the millions of people who pay AOL monthly subscriptions to have the world's biggest internet service provider guide them through cyberspace.





Kenneth Cukier, international editor of technology magazine Red Herring, told BBC News Online: "This will be the spark that sets off a much bigger bonfire.

Kenneth Cukier of Red Herring


"Recently there has been a lot of consolidation in the telecoms sector but not much among entertainment companies.

"By merging, EMI Warner extend their customer base via AOL, and this changes the whole music business model.

"At the moment, you pay once for your CD and that's it. In future, music is likely to be sold by subscription or pay-per-use."

This prospect raises the huge question of security, which affects the whole world of online retailing.

Enhanced security

One of Warner EMI's biggest rivals, German publishing giant Bertelsmann, has announced a joint venture with struggling bank NatWest and American internet firm Intertrust to develop a secure system for making music available on the net.

Warner EMI Music
Labels: Warner, Atlantic, Elektra, Virgin, EMI, Blue Note
Artists under contract: 2,500
Sales: 5bn ($8bn)
Profits: 600m
Global market share: 20%


It will allow record companies to control royalties from online sales.

The availability of music online has been held back by concerns over how to stop copyright material being distributed free.

With mobile phones in line to be the walkmans of the near future, there is a need for security technology to catch up with what consumers are demanding - to be able to have the music they want, where they want.

A late bid for EMI?

There could still be a late intervention to spoil the party. Bertelsmann has ruled itself out, but other rivals Sony and Universal might decide to put in a bid for EMI.

"I think we will see a third party coming in to the deal," said Lorna Tilbian, media analyst at WestLB Panmure.

"Once the regulatory constraints are addressed, it will give a third party a chance. It could be one of the US majors that lack music - Disney or News Corp. - or it could be Yahoo."

But Martin Clark, head of media investments at fund manager Phillips & Drew, said: "I don't think there will be a counterbid. Among the music companies, there are too many antitrust problems and among other media companies, the synergies just aren't there."

Final stages

Under the current merger plan, EMI and Warner will come together in a 50:50 joint venture, although Warner will have boardroom control.

Mick Jagger EMI catalogue includes Rolling Stones


The deal will "create very considerable value for shareholders of both companies", EMI said.

But it also said up to 3,000 jobs could go during the next three years.

Time Warner will offer each shareholder 1 per share in cash. In return, it takes control of the board of directors of the merged company.

Regulators

The plan could still be blocked by competition concerns. The new group would control 26.5% of the US market, and officials there and in Europe will be closely scrutinising details of the plan.

"Generally these types of deals are looked at under the merger rules," said European Commission spokesman Michael Tscherny, adding: "There is a limited number of big players in that market".

EMI says the merger could produce annual cost savings of 250m ($400m) for the two companies. Between them, they have overheads of more than 3bn a year.

Warner's Roger Ames will be chief executive of Warner EMI Music, with EMI's Ken Berry chief operating officer and Eric Nicoli of EMI and Richard Parsons of Warner joint chairmen.

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See also:
24 Jan 00 |  Business
Record companies sue MP3.com
24 Jan 00 |  Entertainment
In pictures: A merging of talent
24 Jan 00 |  Business
EMI: A brief history
07 Dec 99 |  Business
This could be the last time
11 Jan 00 |  Business
Can the internet save 'old media'?
10 Jan 00 |  Business
AOL, Time Warner confirm merger

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