Industry related news today. Pay attention to the quotes and the names.
Seagram, Bertelsmann Form Online Music Alliance (Update3)
Bloomberg News
April 7, 1999, 1:13 p.m. PT
Seagram, Bertelsmann Form Online Music Alliance (Update3)
(Adds analyst comment; updates with closing stock prices.)
New York, April 7 (Bloomberg) -- Seagram Co., owner of the
world's biggest music company, and Germany's Bertelsmann AG, the
No. 3 media company, said they're forming an online music
alliance to create Internet sites that promote and sell music.
Seagram's Universal Music Group and Bertelsmann will allow
online users to access information and buy compact discs of the
nearly 200 artists represented by the two companies, and will
offer titles for purchase from other companies. The venture,
called GetMusic, will have its e-commerce site at getmusic.com.
The big record companies are rushing to gain dominance over
the Internet, which is expected to be the next big distribution
channel for music. Free copying and distribution of digitally
recorded music, through technologies such as the MP3 software
format, are threatening the industry's copyrights and revenue.
The alliance also creates a music retailing powerhouse that will
compete with online rivals such as CDNow Inc. and Amazon.com Inc.
''The bigger you can be, and the more you have to offer, the
better,'' said Linda Bannister, an analyst at Edward Jones who
has a ''buy'' rating on Seagram shares.
The venture unites two of the world's five major music
distributors. The companies said the alliance was mainly a
marketing tool and they didn't plan to compete aggressively with
other retailers.
CDNow shares fell 1 7/16 to 14 5/8, while Amazon.com fell
7 1/2 to 175 3/8. Seagram rose 3 11/16 to 58 5/8.
''They aren't getting into retailing for the sake of making
money but in order to find out more about their customers,'' said
Mark Hardie, an entertainment analyst at Forrester Research Inc.
Customer Database
The two companies said they have a combined database of 50
million customers worldwide. They hope to use those names to
appeal to potential online music customers, as well as add to the
list by gathering information about visitors to the Web sites.
The companies seek to attract customers by offering sites
that include commerce and content such as exclusive interviews or
online chats with the record labels' artists.
''We believe that community will lead to commerce, not vice
versa,'' said Strauss Zelnick, president and chief executive of
Bertelsmann's BMG Entertainment unit.
Executives from both companies said there are no current
plans to sell stock in the venture to the public at this time,
though they remain open to all possibilities.
Financial terms of the alliance weren't disclosed. Seagram
Chief Executive and President Edgar Bronfman Jr. said both
companies' contributions are ''significant.''
One Digital Standard
Bertelsmann and Montreal-based Seagram, along with other
record and technology companies, are currently working to create
a single standard to distribute music online.
The music companies ''are afraid they could find themselves
marginalized in their own industry,'' said Angela Maxwell, an
analyst with London-based Sutherlands Ltd.
Seagram's Universal Music Group owns the MCA and Geffen
labels, and the company recently acquired PolyGram NV, with
labels such as Mercury, Motown and A&M, for $10.4 billion. Its
artists include country-Western singer Reba McEntire and opera
singer Luciano Pavarotti.
Bertelsmann Music Group's labels include RCA and Arista,
with such artists as rapper Sean ''Puff Daddy'' Combs.
Other top music distributors are forging similar Internet
pacts. EMI Group Plc of the U.K. and Sony Music of Japan agreed
last month to cooperate on developing Internet sites for their
record companies, the Financial Times reported.
The five biggest music companies, which includes Time Warner
Inc. along with Seagram, Bertelsmann, EMI and Sony, also have
joined with International Business Machines Corp., the No. 1
computer maker, to test a system to sell music distributed over
the Internet.
''The Internet is going to transform the music industry,''
Seagram's Bronfman said recently.
Selling Music
Total sales of music on the Internet will grow to $3.93
billion by 2005 from $28.7 million in 1997, according to Market
Tracking International, a London-based research company. The
industry has annual sales of about $38 billion, according to the
International Federation of the Phonographic Industry.
The partnership will build on several genre-based Internet
sites that BMG already has started, offering chat rooms, artist
interviews and live music broadcasts. The sites, which include
peeps.com, feature rhythm and blues and hip-hop artists and will
be revamped later this year with content from both Universal and
BMG. The sites initially will focus on the North American market,
the companies said.
For Guetersloh, Germany-based Bertelsmann, which also counts
U.S. publisher Random House among its holdings, the alliance
underscores new Chief Executive Thomas Middelhoff's effort to
expand the 164-year-old company beyond its traditional media base
into online retailing and other electronic media.
Bertelsmann's AOL Europe partnership with America Online
Inc. is Europe's No. 2 Internet service provider after Deutsche
Telekom AG's T-Online.
The German company last year also bought a 50 percent stake
in barnesandnoble.com, the online bookselling unit of Barnes &
Noble Inc., and started its own European online book retailer,
BooksOnline.
Middlehoff, who engineered the company's alliance with AOL
as head of Bertelsmann's media division, predicts Bertelsmann's
new-media operations will generate sales of 3 billion deutsche
marks ($1.66 billion) by 2000, compared with 700 million marks in
fiscal 1998.
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