- The Washington Times - Wednesday, August 6, 2008

LOS ANGELES | Sony Corp. said Tuesday it is buying Bertelsmann AG out of their 50-50 music venture Sony BMG for $900 million, giving it full ownership of a roster of artists including Alicia Keys and the increased ability to leverage music over an array of electronic devices.

In a filing with the Securities and Exchange Commission, the Japanese electronics and entertainment giant said it would pay Bertelsmann $600 million and give it all of the $600 million in cash holdings of the joint venture. Since privately owned Bertelsmann already owned $300 million of that sum, the deal is valued at $900 million.

The move enables Sony to move more quickly as the No. 2 competitor in a U.S. music industry challenged by online piracy and declining album sales. It also allows the company to cut costs and make a further attempt to integrate its content on cell phones and its popular game console, PlayStation 3.

The U.S. stock market cheered the announcement, sending Sony shares up $1.37, or 3.7 percent, to close at $38.39.

Analysts said it remains unclear whether Sony will be able to turn around the joint venture, which has seen revenues tumble but profits improve due to cost cutting.

In 2007, it posted $429 million in operating earnings before interest, depreciation and amortization as revenue declined 28 percent to $4.5 billion, according to Bertelsmann’s annual report.

Pali Research analyst Richard Greenfield said the acquisition valued Sony BMG - to be renamed Sony Music Entertainment Inc. - at $1.8 billion, just more than four times its annual earnings power.

“It’s already a pretty low valuation,” Mr. Greenfield said. “It shows you how the music business remains a very questionable business over the next couple of years.”

Sony has made moves recently to merge its content with its electronic goods.

In June, the company said it would deliver movies and TV shows to Bravia TVs via the Internet before the content is released on DVD, starting with “Hancock” from Sony Pictures.

The company also introduced a digital download service for its PlayStation 3 game console last month, and has previously sold the console with a free Blu-ray copy of the James Bond movie, “Casino Royale.”

It has a further opportunity to leverage its music properties with its “Singstar” competitive karaoke game on the PlayStation 3. Other companies have profited handsomely from such breakaway music games as “Guitar Hero” and “Rock Band.”

Soleil-Hudson Square Research analyst Daniel Ernst said an attempt to use its music properties in the high-margin games business was a step in the right direction.

“That’s the future,” he said, adding it was unclear whether the decision to take over Sony BMG would be fruitful. “It remains to be seen if it could be valuable or not.”

Once the deal, which is subject to regulatory approvals, is complete, Sony Music Entertainment Inc. will comprise several music labels, including Arista Records, Columbia Records, Epic Records, J Records, Jive Records, RCA Records and Zomba.

Its artists will include Celine Dion, Bruce Springsteen, Justin Timberlake and Usher, among others.

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