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Sony Music Entertainment (US)

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Sony Music Entertainment is the world's second largest music group (after Universal), with a huge portfolio of artists and labels worldwide, although it tends to be most closely associated with chart-friendly pop. Artists include Adele, One Direction, Justin Timberlake and Michael Jackson. Now wholly owned by Sony Corporation, it was until 2008 a joint venture with Bertelsmann of Germany, operating under the name Sony BMG. That business had been created in 2004 from the merger of Sony's US-based music arm with Bertelsmann's BMG Music Entertainment. At the time the joint venture was conceived as Bertelsmann's exit route from what was then a deeply troubled industry. In 2008, Bertelsmann began negotiations to sell its half share in the business to Sony, and a deal was agreed that summer. After completion the company rebranded as Sony Music Entertainment. In 2011, Sony sealed an agreement to strengthen its music publishing division considerably through the partial acquisition of EMI's equivalent subsidiary for $2.2bn.

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Contact

Sony Music Entertainment
550 Madison Avenue
New York, NY 10022-3211
United States
Tel: 1 212 833 8000

Brands & Activities

From 2004 to 2008, Sony BMG was jointly owned by Bertelsmann and Sony Corporation, combining the recorded music units of both those companies, but not their respective publishing, distribution and manufacturing businesses, or Sony's separate recorded music subsidiary in Japan. In June 2008, Bertelsmann opened talks to sell its 50% holding in Sony BMG to Sony. A deal was agreed in August in which Sony acquired the shares it didn't already own for $900m. Sony BMG became Sony Music Entertainment in January 2009.

Sony inherited from BMG a longstanding relationship with music entrepreneur Simon Cowell, including exclusive rights to recordings by X Factor, American Idol and Got Talent winners, including Leona Lewis, Alexandra Burke, Susan Boyle and above all One Direction. Until 2010, Sony had complete control of Cowell's Syco Music production company, but agreed that year to swap its holding for 50% of a new joint venture, Syco Entertainment, which produces and distributes music, TV, film and digital content. In 2016, Sony signed a record-breaking £90m contract with Adele, whose music it already distributes in the US and selected other markets.

In 2016, Sony's overall share of the global recorded music market rose slightly to 22.8%.

Top-selling releases in 2017 were P!nk's Beautiful Trauma, DJ Khaled's Grateful, Camila Cabelo's Camila, American Teen by Khalid and Harry Styles' eponymous album, as well as releases from Rag'n'Bone Man, Justin Timberlake, Chris Brown, Calvin Harris and Nogizaka46. Beyonce's Lemonade was the top-seller of 2016. Other key artists on the roster include Beyonce, Foo Fighters, Britney Spears, Usher, Justin Timberlake, John Legend, Mark Ronson, Miley Cyrus, Calvin Harris, Pharrell Williams, Rita Ora, George Ezra, Olly Murs, Paloma Faith, Bruce Springsteen, Celine Dion, Barbra Streisand, Dolly Parton and Manic Street Preachers. The group controls back catalogue for artists including Bob Dylan, Michael Jackson, Whitney Houston, Elvis Presley, Johnny Cash, Luther Vandross and The Clash.

What was once a mammoth collection of separate labels has been steadily consolidated, with once-famed brands such as Jive, LaFace and BMG phased out altogether, and others such as Arista, retained only for its Nashville C&W portfolio. However core labels such as Columbia, Epic and RCA remain and have been expanded to house all the group's artists. Newer labels include back catalogue specialist Legacy and classical imprint Sony Masterworks. The group has distributed Jay Z's RocNation label from 2009 to 2013, when the label moved to Universal. In 2015, the group agreed to acquire the shares it didn't already own in US independent distributor The Orchard for a total valuation of $392m.

Sony's music publishing business had remained outside the Sony BMG partnership. This is Sony/ATV Music Publishing, now the global leader in its market following the acquisition of EMI Publishing. It was traditionally a three-way joint venture between Sony Music, Sony Music Japan and the estate of singer Michael Jackson, who acquired the American Television (ATV) Publishing empire during the 1990s. In 2007, Sony/ATV was expanded with the acquisition of Famous Music, previously a unit of Viacom, for around $370m. That company was previously one of the top ten music publishers in the US, with copyrights for more than 100,000 songs and themes from Paramount movies (including The Godfather and Mission:Impossible). In November 2011, a consortium led by Sony agreed a deal to acquire the publishing operations of smaller rival EMI for $2.2bn. The EMI unit continues to operate separately, though it is ultimately under the control of Sony/ATV. Bertelsmann's separate music publishing subsidiary, BMG Music Publishing, was sold in 2006 to Universal Music for €1.6bn. In Mar 2016, Sony negotiated to buy out its partner in Sony/ATV for $750m. The deal doesn't include Mijac Music, which continues to own the songs actually written by Michael Jackson; nor does it include the Jackson estate's stake in EMI Music Publishing. For 2016, Sony/ATV had a 23.0% share of the global music publishing market.

Sony Music dabbled repeatedly in mail order and internet delivery services during the 1990s and early 2000s, but with comparatively little success. It inherited legendary US mail order business Columbia House as part of CBS Records, but sold a 50% stake to Warner Music in 1989. Both partners bailed out in 2002, selling the business to investment group Blackstone Partners in 2002. (It was reacquired by Bertelsmann in 2005). Internet service Pressplay was originally a joint venture between Sony and Universal Music Group, but was sold in 2003 and later merged into the relaunched Napster service. In a bid to create a rival to Apple's iTunes, Sony launched its third attempt at direct music sales in 2004, under the name Sony Connect, a partnership between the company's music and electronics division. However that service also failed to find a market, and the company shut down Connect in 2008.

Financials

For the year to March 2017, Sony Music reported external revenues of Y631bn ($5.6bn), up 5%. Operating income slipped by 12% to $677m. Sony broke out revenues of $3.5bn from recorded music, $594m from music publishing and almost $1.6bn from "visual media and platform", which comprises "service offerings for music and visual products and production and distribution of animation titles".

For the year to March 2018, Sony Music reported external revenues of Y784.8bn ($7.1bn), up 24%. Operating income soared by 68% to Y128bn ($1.15bn). Sony broke out revenues of Y447bn ($4.0bn) from recorded music, of which as much as 44% came from streaming. There was an additional Y74.4bn ($671m) from music publishing and Y263.5bn ($2.4bn) "visual media and platform". The latter segment included sales of mobile games, including big hit Fate/Grand Order.

Management

Former BMG executive Rolf Schmidt-Holtz retired as CEO of Sony Music Entertainment in 2011. In an extraordinary development, he was replaced by Doug Morris, previously the long-serving chairman-CEO of arch-rival Universal Music Group. Morris now reports to Michael Lynton, chief executive of Sony Pictures Entertainment and of the umbrella Sony Entertainment umbrella.

Other senior executives include Kevin Kelleher (EVP and CFO) and Edgar Berger (president & CEO, international). Label heads include Peter Edge (CEO, RCA Music Group), Antonio LA Reid (CEO, Epic Records Group), Randy Goodman (CEO, Sony Nashville), Rob Stringer (CEO, Columbia Records Group), Richard Story (president, commercial music group), Lukazs "Dr Luke" Gottwald (CEO, Kemosabe Records), Dennis Kooker (president, global digital & US sales), Mel Lewinter (EVP, label strategy) and Salaam Remi (EVP, A&R & production). Liz Young is EVP, corporate communications. Martin Bandier is chairman & CEO, Sony/ATV. Marketers include Lyn Koppe (EVP, global marketing), Jim Parham (SVP, global marketing) and Anthony Ellis (VP, global marketing).

Background

Until the late 1980s, Sony Corporation was almost exclusively a consumer electronics manufacturer, with a mixed track record. The company's fortunes were based on its early technological breakthroughs in audio tape and television manufacturing, but the 1980s had provided a series of both hits and misses. Sony's Betamax video standard had been a flop, but the Walkman and Compact Disc were unqualified successes. Towards the end of the decade the company took a strategic decision to turn itself from merely a hardware manufacturer into a software supplier as well. Supported by a booming Japanese economy, Sony invaded the US entertainment market for the first time in 1988, paying $2bn to buy music industry giant CBS Records from CBS Television.

Almost a hundred years earlier, The Columbia Phonograph Company had been one of several regional US businesses which leased rights to the phonographic cylinder recording systems developed by Thomas Edison and other inventors. The system was really designed for office dictating machines, but Baltimore-based Columbia moved quickly into entertainment, recording popular songs and marches. By 1895, the company had a catalogue of more than 5,000 recordings on cylinder.

In 1901 another inventor, Emile Berliner, designed a system in which sounds were recorded onto flat discs rather than Edison's cylinders. The device, called a Gram-O-Phone, produced better quality recordings and quickly revolutionised the business. Columbia jumped on the popular bandwagon, converting its catalogue to 7 and 10-inch discs, and it became one of the first recording companies to specialise in light orchestral and danceband music.

Columbia took over jazz label OKeh in 1926, and was itself acquired by ARC-BRC in 1934. Four years later, the business was engulfed by Columbia Broadcasting Systems, a sales network which had originally been set up by the recording company, but had later been sold off. (See CBS Television). In 1948, CBS introduced new technology which allowed longer recordings to be pressed onto disc and played back at less than half the speed of the old discs (33 1/3 revolutions per minute instead of the old 78 rpm). In what was in effect a precursor to the reinvention of the music industry by CD years later, consumers were encouraged to buy new 33 1/3 rpm players and discs to replace their old 78 players and discs. In 1953, CBS launched a second label, Epic, initially to specialise in jazz and classical music. Two years later, Columbia House was set up to sell the group's products via mail order. Following rapid growth around the world, CBS Records had become the world's largest music company by 1978, with sales over $1bn.

The relationship with Sony started in 1968 with the formation of a CBS/Sony joint venture to market US records in Japan. The two companies also worked closely together to launch compact discs in 1982. Then in 1988, Sony acquired the American company for $2bn, renaming it Sony Music Entertainment, and appointing as its head music industry executive Tommy Mottola, best-known at the time as the architect of the huge success of soul-rock duo Hall & Oates. The following year, Sony sold a 50% share in Columbia House to Time Warner's Warner Music Group. Mottola oversaw a reinvention of the business, signing a series of high profile and hugely successful acts including Mariah Carey (later, briefly, Mrs Mottola), Cline Dion, Gloria Estefan, Ricky Martin and Jennifer Lopez.

In 1999, Sony and Time Warner announced that Columbia House would merge with online retailer CD Now, pooling the two companies' resources and buying power. However TW's subsequent merger with AOL led to the collapse of the CD Now deal in early 2000. (CD Now was later acquired by Bertelsmann; Sony and Time Warner subsequently sold their majority interest in Columbia House). Later that year, Sony Music and sister company Sony Pictures were grouped under the Sony Broadband Entertainment umbrella. The group also joined forces with Universal Music Group (now part of Vivendi) to develop a service to distribute both companies' material over the internet as an industry-approved alternative to Napster. This service was launched in early 2002 as Pressplay.

Yet the period between 2000 and 2003 was marked by sharp falls in both sales and profitability among all the leading music companies in the face of internet piracy and a shortage of new talent. Sony's own sales fell by more than 20% over the period, and the company notched up losses as it struggled to adjust to the harsher climate. Adding to the label's troubles, singer Michael Jackson launched a high-profile media campaign against long-reigning chairman & CEO Tommy Mottola, whom he accused of racism and for failing to promote Jackson's most recent album. Despite these concerns, Mottola's resignation in 2003 came as something of a surprise. Still more surprising to many was the announcement of his replacement, Andrew Lack, a former news producer who had graduated to president of NBC, and had no experience or even particular interest in the music industry. Lack's brief was to cut costs and return Sony Music to profit.

The Sony BMG merger was announced towards the end of 2003. Initially, European regulators voiced major reservations over the merger, backed by negative campaigning from independent record companies who feared the creation of an effective duopoly between Sony BMG and Universal. However Sony and BMG were reported to have delivered an impressive and wide-reaching defence of their position, and rumours began to circulate in June 2004 that the deal would be approved. A final ruling was delivered at the end of July, clearing the merger without conditions. Despite this, an association representing independent record companies issued a lawsuit in Europe's second-highest court protesting the merger. Almost exactly two years later that case concluded with the judgment that the EU had been wrong to give permission. The judge ordered that the monopoly investigation be repeated. After a year of additional work, the merger was cleared by the European Commission for the second time, again without conditions.

Also in 2004 New York Attorney General Eliot Spitzer began an investigation into allegations that senior managers at Sony's Epic Records subsidiary had bribed radio executives with cash and gifts in exchange for airplay of certain songs. A year later, Sony BMG conceded that its employees had engaged in improper practices and agreed to pay a $10m fine to settle the case. Although most of the major record companies also faced similar investigations, tensions were already beginning to surface in Sony BMG's management suite. BMG's most senior representative at operating level, COO Michael Smellie, resigned from the group in late summer, supposedly for family reasons, and Bertelsmann was subsequently reported to have voiced its objection to the renewal of CEO Andrew Lack's contract. An outsider to the music business industry when he was appointed, Lack had remained aloof as group CEO, and several senior executives from the Bertelsmann side of the company were said to have felt slighted and frustrated, not least long-time kingmaker Clive Davis who made a formal complaint to the Bertelsmann board over contractual issues said to have been blocked by Lack.

Another milestone was Lack's unilateral decision to agree a lavish $110m ten-year contract renewal with ageing rocker Bruce Springsteen, despite the fact that the Boss's record sales were in sharp decline. Lack also championed the introduction of copy protection software on music CDs during 2005. However it turned out that these made PCs vulnerable to attack from hackers, leading to several lawsuits, including one from the state of Texas. Sony BMG was forced to recall 4.7m CDs in the US to remove the software, and eventually settled the various lawsuits with payments totalling $4.25m. After several months of disagreement between Bertelsmann and Sony over the management of the group, the two sides called a truce with a deal to swap the roles of Lack and Bertelsmann representative Rolf Schmidt-Holz in 2006.

Meanwhile in 2005, Sony BMG agreed what it called "an unprecedented marketing alliance" with MTV to promote new and exclusive content on MTV's broadcast and internet platforms in Europe, Asia Pacific and Latin America. The agreement, which runs under the banner MTV Star, allowed for exclusive previews of new videos and feature content.

Last full revision 11th September 2015

* Archive page for historical reference only. This profile is no longer being actively updated. See active page here *


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