Media giants Seagram Co. and Bertelsmann AG are
joining forces to sell music online, where they face stiff
competition from online retailers like Amazon.com and CDnow.
|Edgar Bronfman and Dr. Thomas Middelhoff hope to leverage their sizable library of music to go up against online retail giants like Amazon.com
Seagram's Universal Music Group unit and Bertelsmann's BMG
Entertainment subsidiary are hoping to use their relationships with
hundreds of artists to lure online customers by offering access to
stars, video and audio clips and other proprietary content.
Together the companies control about 40 percent of the American
music market, including record labels Geffen, A&M;, Arista and RCA.
Represented artists include Jimi Hendrix, Kenny G, Motley Crue and
The joint venture announced in New York Wednesday would add
Universal artists to five existing Web sites run by BMG which cater
to specific musical tastes, such as peeps.com for hip-hop and
twangthis.com for country music.
The sites are linked to a new online music store, getmusic.com,
which would also offer CDs from other labels. All the sites are
currently running, but the companies expect to launch revamped
versions this summer.
Record companies have been scrambling to come up with online
music strategies as it becomes easier to download bootleg music
from the Internet. They are hoping to agree on a digital standard
that would allow them to control the downloading of music and
ensure that the companies and artists receive royalties.
So far Seagram and Bertelsmann are not talking about letting
users download music themselves, although the move to establish a
beachhead in cyberspace could clearly set the stage for such
efforts in the future.
The announcement of the project received lukewarm views from
industry analysts, who say the effort may need to evolve before
finding success with consumers.
"In terms of building an online sales site around specific
music genres, record companies may be putting the cart before the
horse," said Melissa Blane, an analyst with the Yankee Group
consulting company in Boston. "First-time online music shoppers
are more likely to go to a general music site."
"If I were Amazon, I wouldn't be afraid right now," agreed
James McQuivey, a senior analyst with the consulting group
For the moment, music retailers don't appear to be worried about
record companies taking away their business with online sales.
Marcia Apple, vice president of leading music retailer Musicland
Stores Corp. of Minneapolis, says that any new technology that
increases awareness of music can help sell music overall.
"From our perspective, people are just trying to figure out
where this new distribution channel is going," Apple said. "The
music clubs were supposed to kill the record retailers, but they
didn't. It's another in a series of distribution systems."
Apple said that Musicland plans to have its Sam Goody stores set
up Internet sales sites this June.
BMG already runs a mail-order music club, which competes with
the Columbia House direct sales unit run by Time Warner Inc. and
Sony Corp. The online operations of BMG's music club would not be
affected by the arrangement with Universal.
Seagram's stock surged $4.06 1/4 or 7.4 percent to $59 on the New
York Stock Exchange Wednesday on news of the Bertelsmann deal and
also of its agreement to sell its PolyGram Filmed Entertainment and
October Films units to USA Networks.
Investors have been rewarding the Montreal-based company,
traditionally known as a whiskey maker, as it builds up its
entertainment holdings, which include the Universal movie studio.
In addition to its music business, Germany-based Bertelsmann, a
private company, also owns the publishing houses Random House and
Bantam Doubleday Dell, and has a half interest in Barnes & Noble's