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This is Celia Hirschman with On The Beat for KCRW.

Is it Annulment Time? The Crisis between Sony & BMG.

The era of the supersized record business may soon be over.

In a surprise decision last week, the European Courts overturned a previous 2004 decision by the European Trade Commission, to approve a merger between Sony Music & BMG. The new finding was precipitated by a legal challenge from Impala, the coalition of 2,500 independent record labels throughout the world. Impala has had a significant impact on changing legal and financial business practices in the music business in recent years.

Impala's argument is that a merger between two giants like Sony & BMG, would only encourage monopolistic business behavior and limit the diversity of music to be sold. The European courts agreed that the Trade Commission had failed to adequately analyze the effect of such a merger. In essence, they've ordered the Trade Commission to reconsider the decision, inspite of the fact that the two companies have already mergered. Sony & BMG have had a week to reapply for approval, and the European Commission will probably take a few months to reevaluate the situation. Until they do, it's jump ball.

Most music executives think that this is much ado about nothing, and the commission will re-approve the merger without fanfare. They point out that since the merger was announced, the combined market share of Sony & BMG has actually gone down, from 25 to 20%, undermining the theory that a merger is monopolistic and hurts the little guy. They argue that widespread digital distribution has equalized an artist's chance for financial success.

I am more than a little biased in this situation. In addition to other duties, I also run a small record label. I know firsthand just how the large conglomerates affect the smaller music labels. So let's consider those arguments. To the point that the Sony BMG has actually lost market share in the last 2 years, I have another theory. In the last two years, several of Sony's prominent artists publicly demanded to leave the label group.

The shareware that Sony BMG attached to some of their hit artist's CDs not only caused an international boycott but also several high visibility lawsuits. In fact, much of the senior management at Sony has been fired or reorganized in the last 2 years. And the reported squabbling of the top brass at both companies since the merger announcement further underscores the lack of leadership and cultural symmetry between the two organizations. In short, Sony and BMG have been seriously internally distracted since the merger announcement. It's not surprising they've fumbled a few campaigns in the process.

To the argument that the Internet has created an even playing field for artists outside the major label system, well, that's really not true. In this country, commercial radio airplay is almost exclusively controlled by music from the major labels. MTV and VH1 program videos on the basis of commercial radio airplay so the visibility for indie artists on those channels is next to nothing. On top of that, major retailers apportion their best in-store positioning to the distributors of the biggest labels. And though online sales are up for everyone, physical sales are still the economic lifeblood of any record label, large or small.

In reality, a merger between these two giants will only continue to foster a limiting and hostile business environment for music and music consumers. That's why the coalition objected. So I guess, if anyone feels these two should not be married, you can count me in.

This is Celia Hirschman with On The Beat for KCRW.

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