Sony and Bertelsmann plan to announce today that they have agreed to merge their music divisions into a joint venture, The Post has learned.
Sony Music and Bertelsmann's BMG division have been locked in merger talks since early September, following the collapse of talks between BMG and Warner Music.
The talks, headed by Sony Music's Chairman Andrew Lack and BMG chief Rolf Schmidt-Holtz, were kicked into high gear in recent weeks as the two tried to beat rivals to the merger finish line. Warner and EMI have also been conducting negotiations.
Lack and Schmidt-Holtz are both expected to hold major roles in the combined company, sources say.
The deal is likely to take several months to complete, as the companies seek approval from regulators. While getting approval won't be easy, sources say regulators are more amenable to a deal than they were a few years ago when mergers between Warner and EMI and between BMG and EMI were struck down.
Both Lack and Schmidt-Holtz are former television executives - Lack at NBC and Schmidt-Holtz at Bertelsmann's RTL - and the deal is a victory for both men.
For Lack, who joined Sony Music in February, the merger represents a significant achievement. Lack was hired to bring financial discipline to the company and seek out a deal to find synergies and buck up the company's fortunes in a declining industry.
"This was a masterstroke by Andy Lack," said one music industry insider familiar with the deal.
The Sony-BMG deal is likely to send shudders through the halls of Time Warner, which is locked in talks with U.K. music company EMI. Sources in the music industry believe regulators will likely give the green light to one - but not two - music mergers.
Time Warner is trying to sell its music assets to pay down debt, and if Time Warner CEO Dick Parsons believes he has little chance to get regulatory approval for an EMI deal, he could move toward selling the division to a private equity group headed by Edgar Bronfman Jr.
Combined, Sony and BMG would have roughly 29 percent of the U.S. music market, just ahead of Universal Music, currently the world's largest music company. Globally, Sony has a 14.1 percent market share, while BMG has an 11.1 percent share.
Rampant piracy has dented music profits in recent years, spurring the major music companies to seek out merger partners. In the first half of 2003, shipments of music products to retailers dropped 10 percent, according the Recording Industry Association of America.
Sony Music is home to such artists as Beyonce Knowles, Aerosmith and Celine Dion, while BMG boasts hit artists like Britney Spears, Pink, Avril Lavigne and of course Elvis Presley.