Now that the European Commission on July 19 cleared the proposed merger of Sony Music and BMG, approval by the U.S. Federal Trade Commission is the final hurdle before the deal's completion.

Now that the European Commission on July 19 cleared the proposed merger of Sony Music and BMG, approval by the U.S. Federal Trade Commission is the final hurdle before the deal's completion. (For more on the EC's approval of the deal, please see the July 26, 2004 Commentary.)

The FTC's rubber-stamping of the merger is thought to be imminent, and the music industry's new lineup of four global majors appears ready to become a reality.

Upon completion of the merger, Sony BMG will be the world's second-largest record company.

Its global market share will be about 22.6%, according to UBS Warburg. Global leader Universal Music Group has 23.5%, according to the International Federation of the Phonographic Industry.

Industry attention is now focused on how Sony and BMG will merge their structures.

BMG chairman Rolf Schmidt-Holtz says it will take "at least a year to complete the merger."

The top management structure for Sony BMG has already been announced. Schmidt-Holtz will be chairman; current Sony Music chairman/CEO Andrew Lack will be CEO. BMG COO Michael Smellie will hold a similar role at the new company, as will Sony Music CFO Kevin Kelleher.

Both BMG and Sony declined to comment on talk that the merger would result in the loss of 2,000 jobs.

"When two large companies join forces, they do this because they want to cut costs and must do so," says Schmidt-Holtz. "These are costs which do not benefit the consumer and music. We will do this as well, because we have no other choice. It is also what we told the Commission."

Still, he says, Sony BMG will achieve efficiencies that will benefit its artists.

"Fewer one-hit wonders and more creative quality -- this is an opportunity for the record industry as a whole," Schmidt-Holtz says. "The point is to channel investment back into music once more. The merger is good for music, for our artists and for our employees. Ultimately, it is the best concept for ensuring both companies' continued existence."

Because the Sony-BMG match is essentially a merger of equals, there will be discussions between the two parties as to how to create the best structure at global, regional and local levels. This will be different from the last merger of two music majors, PolyGram and Universal, in which the buyer, Universal, called the shots.

Many speculate that much will be done in the next four to six months.

"To focus on efficiencies and deliver the savings they announced, they will have to act fairly quickly, especially in the main territories such as the U.S., the U.K., Germany and France," one observer says. "And this will also have a devastating effect on the artist roster."

The international structure of the combined company is a key issue.

Sony Music has a specific structure in place for its global affiliates: Sony Music International, based in New York, under chairman Bob Bowlin and president Rick Dobbis. Most territories report directly to Dobbis.


BMG has no specific international organization. Executives in the various territories report directly to Schmidt-Holtz, Smellie or Maarten Steinkamp, BMG president of international and acting president of BMG Germany. Sources say Steinkamp will play a major role in the new global setup.

Both companies have centralized their global operations and marketing in New York.

Observers suggest that the global marketing team of BMG executive VP/chief marketing officer Tim Prescott -- which has achieved success in recent months with the likes of Avril Lavigne, OutKast, Usher and Alicia Keys -- is in the best position to occupy the same role in the new company, augmented with several recruits from Sony.

In Europe, both companies have suppressed one layer of management and no longer have a president for the region. However, due to the importance of the market, a new regional structure could be put in place.