Cost cutting at Sony BMG helped improve Bertelsmann's music profits in 2005, but the media giant's music sales for the year were dragged down by softness in the overall music market.

Cost cutting at Sony BMG helped improve Bertelsmann’s music profits in 2005, but the media giant’s music sales for the year were dragged down by softness in the overall music market.

Bertelsmann says its music operating income rose 9.3% to €177 million ($215 million), while music-related revenues slipped 16.5% to €2.1 billion ($2.5 billion), for the year ended Dec. 31, 2005.

The company’s music financials include 50% of the results of its Sony BMG Music Entertainment joint venture with Sony Corp, and the entire results of the wholly-owned BMG Music Publishing.

Bertelsmann says its improved operating income reflects cost saving initiatives at Sony BMG.

Sony BMG largely completed its integration process by year-end 2005. The restructuring costs associated with the integration amounted to €210 million ($255 million), half of which were borne by Bertelsmann, the other half by Sony Corp.

Annual cost savings by merging the headquarters in New York and the business units in 45 countries amounted to €265 million ($322 million), the company said.

Bertelsmann attributes the decline in music sales, in part, to a shift in how it accounts for distribution revenues from Sony BMG—a change that was put into effect in July 2005. On an adjusted basis, the company says music revenues declined 7.2%, on softness in the music business at large.

Despite the sales slump, Bertelsmann claims 13 Sony BMG albums shifted more than two million units worldwide in 2005, and twenty-nine others sold more than a million units. Digital sales account for 7% of Sony BMG's revenue, the company reported.

"What we haven't achieved yet -- and this is something that always takes a little longer -- is to marry the corporate culture of the two companies,” Bertelsmann CEO Gunter Thielen told during the presentation of Bertelsmann's annual financial statements for 2005 in Berlin today. “We have different management philosophies at Sony and Bertelsmann. However, this doesn't mean that we have any disputes with Sony.”

Thielen also voiced support for new Sony BMG CEO Rolf Schmidt-Holtz. "BMG was in a rather poor state in 2001 and what Schmidt-Holtz achieved—particularly in the creative area—was really very impressive. I think that he is the right man for the job at the moment and everyone at Sony BMG is in complete agreement about this.”